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Exposing the plot behind the passage of the Federal Re- 
serve Act of 1913, which was the abdication of Congress, 
and the creation of the money trust, placing the nation's 
banking reserves in the hands of the Jewish Inter- 
national Bankers for the purpose of carrying out their 
nearly fulfilled world dictatorship plan. 

This money power in their hands enabled them to create 
two world wars, and two depressions, and to bring on the 
present world crisis, leading to the death of our Con- 
stitution and the end of our liberties. 




Eustace MulHns 

Published by- 
Christian Educational Assn. 

Union, New Jersey 



In. the fall of 194$ I went to the Library of Congress to get 
material for a newspaper article abont the Federal Reserve Board 
of Governors. What I expected to be a week's labor turned into a 
lengthy research job of nineteen months, for I discovered, in my 
initial inquiry, that there existed not one narrative account of the 
origins and activities of this powerful organization. Consequently, 
the majority of my information was gathered piecemeal from a 
vast number of periodicals, ranging from popular magazines such 
as the Saturday Evening Post to the exclusive bankers 3 magazine, 
The Economist. 

The standard works on the Federal Eeserve System, almost 
entirely abstruse and technical works on economics, I found of 
little practical value. Even in the matter of acceptances, the usual 
textbooks contained no information upon -such an important item 
in Am erica's economic history as the changeover from the open- 
book system of credit to the acceptance system, which has wrought 
such vast changes in our practice of commerce, and for this in- 
formation I found only one souree, a few pamphlets published by 
the American Acceptance Council from 1915 to 1928. It is, then, 
little Wonder that the student with a Master's Degree in Eco- 
nomics from one of the better universities will see here for the 
first time material which should have been before him in his ele- 
mentary courses. 

The birthplace of the Federal Reserve Act, J ekyl Island, is now 
operated as a public park by the State of Georgia, but the tourist 
will find no plaque there commemorating the event. This is not 
so much an oversight on the part of the park officials as it is a 
triumph for the more than adequate publicists of the Federal 
Reserve Board, who have perpetuated the comfortable fiction that 
the Act was born in the halls of Congress, the. product of the 
minds of Carter Glass and "Woodrow "Wilson. It is the writer's 
hope that this and many similar fictions will not long survive the 
publication of this work. 


I wish, to thank my fellow-members of 
the staff of the Library of Congress, whose 
very kind suggestions, assistance, and co- 
operation have " made this book possible. I 
particularly wish to thank Mr. Luther Evans, 
Librarian of Congress, Col. Willard "Webb 
of the Stack and Reader Division, and many 
other emploj'-ees who have extended me every 
courtesy in the preparation of this work 

Eustace Mullnis 

— 4 — 

Chapter One 

On the night of November 22, 1910, a crowd of newspaper re- 
porters gathered at the Hoboken, New Jersey, railway station. 
They had been tipped off that some very highly-placed people 
were coming over to Hoboken from New York City to board a 
train and go away on a secret mission. What the mission might 
be, or who the personages involved, none of them knew, hat they 
were certain that an extremely important event was in the making. 

Senator Nelson Aldrich entered the station. Here Was their 
proof. The reporters gathered around him. He was always good 
copy, although he was noted for his brusqueness and the difficulty 
of getting a story from him. This was due to his tieup with the 
powerful Rubber Trust and the Tobacco Trust. As one of the coali- 
tion of five Republican Senators then ruling the Senate, Aldrieh 
had used his elective position to enact a series of tariffs and laws 
favorable to his own interests, and bad been denounced many 
times for his callous disregard of his oath of office as he devoted 
his power to the program of international financier. 

Aldrich had recently returned from Europe with the National 
Monetary Commission, of which he was head. This was a Com- 
mission appointed by Congress in response to public feeling against 
big bankers after the artificial Panic of 190T. The commission had 
been charged to make a thorough study of financial practices before 
formulating banking and currency reform legislation for Congress 
It was pointed out at the time that such legislation seemed unlikely 
to offer genuine reform under the leadership of a man with Aldrich 's 
known sympathies and employment but Congress was blithely im- 
pervious to this criticism. 

Senator Aldrich and the National Monetary Commission had 
spent nearly two years touring Europe at the American taxpayer's 
expense. He and his entourage had dissipated more than three hun- 
dred thousand dollars of public money, although they had been wined 
and dined by all the important European financiers and seemed to 
live off the land wherever they travelled. Since his return to this 
country, Senator Aldrich had made no effort to report to Congress 
the outcome of his trip, nor had he a's yet offered any ideas as to 
banking reform. The nation waited for him to provide a cure for the 
recurring financial panics which had upset business and small for- 
tunes continually since the Civil "War. He had not come to any defi- 
nite plan for such a cure. 

"With Senator Aldrieh was A. Piatt Andrew, professional econ- 
omist and Assistant Secretary of the Treasury, who had .travelled 
with Aldrieh to Europe as Special Assistant to the National Monetary 
Commission. They were followed by Aldrich 's private secretary, 

— 5 — 

Shelton, and reporters "with, a - number of pieces of luggage. Evidently 
they were going away for an extended time. The crowd of reporters, 
representing most of the great New York dailies, were convinced that 
the secret mission must have some connection with the proposed finan- 
cial reform, and clustered aggressively around Aldrieh, demanding a 

Aldrieh was accustomed to dealing with reporters, and walked 
past them without answering any of the questions shouted at him, 
nor did his companions so much as look up at the newsmen. They en- 
tered Aldrieh 5 s private ear at the end of the train, and the shades 
were immediately drawn over the windows. The reporters were left 
to speculate with each other on the possible destination of the legis- 

Their curiosity was increased when they saw coming into the 
station two more hankers, followed by a group of porters. Here was 
Frank Vanderlip, a stocky, genial man who had risen from working 
as a farmhand to become President of the National City Bank of New 
York, the most powerful bank in this country, representing the Rocke- 
feller oil interests and the railroad systems owned by the banking 
house of Kuhn, Loeb Company. The National City Bank had large 
interests in South America, and had been charged in 1898 with, get- 
ting the United States to go to war with Spain. At any rate, the 
National City Bank came out of the Spanish-American War as the 
proprietor of Cuba's sugar industry. 

"With Vanderlip was the austere Henry P. Davison, senior part- 
ner of J. P. Morgan Company, and Charles D. Norton, President of 
Morgan's First National Bank of New York. These three financiers 
were dominant in the small group of New York Bankers which had 
been accused of controlling the entire money and credit of the United 
States. In response to the reporter's question, Mr. Vanderlip de- 
clared that they were only going away for a quiet weekend in the 

These men controlled the oil, railroads, communications, and 
heavy industry of this country. "What plan of action brought them 
skulking out of New York to board a private train on the other side 
of the river? Men as powerful as these had no reason to hide their 
comings and goings, and in the past they had been openly scornful 
of public opinion and public interest. .No large new enterprise could 
be undertaken without coming to one or more of these men, and they 
saw tc it that their advice and aid were well recompensed. They elected 
Congressmen, appointed Judges, and bought and sold newspapers and 
publishing houses whenever they needed a job done. One of their 
number had once earned a' sort of fame by exclaiming "The public 
be damned!" It was not in character that they should cloak them- 
selves in mystery. 

The reporters had the same luck with these bankers that they had 

— 6 — 

had with. Aldrieh, and watched their story disappear into Aldrich's 
private ear. The next figure to appear was not so well known to them. 
This was Paul Moritz "Warburg, a German immigrant who had "been 
in this country less than eight years, hut who had so availed himself 
of the privileges of this land of opportunity that he was already a 
partner in the hanking house of Kuhn, Loeh Company, New York, 
at a salary of five hundred thousand dollars a year. His family house 
of M. M. Warburg Company, of Hamburg and Amsterdam, was the 
chief German representative of the great European hanking family, 
the Rothschilds. Liberal amounts of Rothschild funds had enabled 
Jacob Schiff to purchase a partnership in Kuhn, Loeb Company and 
less than twenty years later achieve an unchallenged domination over 
the large railway systems of the United States. 

Paul Warburg had not devoted much attention to business since 
he arrived in this country. Instead, he had spent much of his time 
writing and lecturing on the subject of monetary reform. This seemed 
to be in direct conflict with his personal interests and the interests of 
his employers, for a genuine monetary reform would certainly reduce 
their profits and power, but his work along these lines brought him 
an increased salary and even more time to advocate banking legislation 
which would set up a central hank in the United States similar to 
those of Europe. "Warburg was already known as the £t banking brain" 
of New York, and commanded large audiences among the city bankers 
when he spoke at the meetings of the Chamber of Commerce or other 
bankers' fraternal groups. 

With Warburg was Benjamin Strong, who had come to prom- 
inence on Wall Street during the Panic of 1907 as an able lieutenant 
of J. P. Morgan, when he demonstrated his ability to carry out orders. 
This was a money panic which had been called by Morgan to wipe 
out the competition of the Heinze-Morse group in the banking, ship- 
ping, and iron industries. Strong's appearance as companion of War- 
burg was no accident, for the J. P. Morgan interests and Kuhn, Loeb 
interests had formed an alliance in 1901, known as the Northern Se- 
curities Company which dominated the country ever since. This alli- 
ance had put Theodore Roosevelt in as President of the United States 
in 1904 to delay the prosecution of the Northern Securities Company 
by the Department of Justice. Roosevelt was successful in doing this, 
and the Morgan-Kuhn-Loeb alliance was able to work out a' more 
complicated and less vulnerable system. For this work, Roosevelt was 
given the name of "trust-buster." * 

'Northern Securities was the consolidation of the Rothschild Empire in America, 
J. P. Morgan and Company having become international agency in 1869, when 
J. P. Morgan and Anthony Drexel went to London and concluded an agreement 
with N. M. Rothschild Company that J. P. .Morgan Company would henceforth act 
as their agent. Thus Drexel Company of Philadelphia, J. P. Morgan Company of 
New York, Grenfell and Company, of London, and Morgan Harjes and Company of 
Paris transacted Rothschild business after 1869, and the Rothschilds were able to 
hide under a less known name. . J. P. Morgan had been chosen for this high honor 
beeause of the affair of the Hall carbines during the civil war, when he swindled 

— 7 — 

Warburg and Strong were silent as the others, and the reporters 
watched the train leave the station without so much as a quote from 
any of the bankers. They returned to their papers with nothing more 
than a few paragraphs on the mysterious departure of the financiers 
from New York, but not a single metropolitan daily carried the story. 
The city editors wisely ignored the event. 

_ The first public reference to the mysterious mission appeared some 
six years later, three years after the Federal Reserve Act had been 
passed and was in operation. This was an article by E. C. Forbes in 
Frank Leslie's magazine, a feature in praise of Paul "Warburg which 
incidentally told a story called " Jekyl Island", giving the first reve- 
lation of what happened in November, 1910. Bit by bit, Forbes' ac- 
count was enlarged upon during the next thirty years, in statements 
and biographies of the principal characters, until the entire story had 
come out. 

Aldrich's private car, which had left Hoboken Station with drawn 
shades, had taken the financiers to Jekyl Island, Georgia, to the Jekyl 
Island Hunt Club, a very exclusive club owned by J. P. Morgan and 
a small group of influential New York bankers. The club was very 
isolated, and was used as a comfortable retreat far from the cares 
of the New York money market. Its advantageous location made it 
much in demand for pursuits other than hunting, and on such oc- 
casions members of the club were informed that they should not appear 
there for a certain number of days. When Aldrieh 's group left New 
York, the club's members had been notified that the club would be 
occupied for the next two weeks. 

The Aldrieh group was not interested at this time in hunting. 
They had come to Jekyl Island to get a lot of work done, and they 
wanted to do that work in absolute secrecy. For that reason, the cus- 
tomary attendants at the club were given two week vacations, and 
new servants brought in for this occasion. The Aldrieh group felt that 
it was imperative that their identity be kept secret, and allowed no 
visitors during the next two weeks. They were so anxious to prevent 
any knowledge of their mission leaking out that they never used last 
names, calling each other by their first names only, such as Henry 
Ben, and Paul. ' ' 

This proved to be so satisfactory for all concerned that it was 
made more formal after their return to New York, when they orga- 
nized the "first-name club" and limited its membership to those who- 
had been on Jekyl Island. 

Why all this secrecy? Why this thousand-mile trip in a closed 
railway ear to a remote hunting club ? The Aldrieh group went there 

wwwt,^^™ 6 ^ ? 7 se i Ung *5 Union Army from a Federal arsenal carbines 
which the Army had condemned. The affair has been thoroughly written up in 
Gustayus Myers- "History of the Great American Fortunes." Mso XP. Morgan™ 
i^l'-J VllUS t S - J™, a P artner °f George Peabody and Companyfthe- 

financial agents of the Federal Government in London during the Civil War and 
as such, had acted in the interests of the Rothschilds also TdocWentedby Myers" 

— 8 — 

to -write the banking and currency legislation which the National 
Monetary Commission had been ordered to prepare. At stake waa 
the future control of the money and credit of the United States. If any 
monetary reform was passed by Congress which was not written by 
and for the New York bankers, their power would be ended. As the 
most technieally-inf ormed of the bankers, Paul Warburg was charged 
with doing most of the drafting of the plan. Senator Nelson Aldrieh 
was there to see that it came out in a form which could be gotten 
through Congress, and the other bankers were there to offer sugges- 
tions and help on banking problems. Instead of making a report to 
Congress or to the American people on the results of the National 
Monetary Commission's trip to Europe, Senator Aldrieh went to Jekyl 
Island to write a bill which later was passed by Congress and signed 
by President "Woodrow Wilson as the Federal Beserve Act of 1913. 

The t Jekyl Island group remained at the club for nine days, work- 
ing steadily to complete their job, for Congress was already complain- 
ing that the National Monetary Commission seemed to have no solu- 
tion ready. Despite the common interests of all present, the work did 
not proceed without frietion. Senator Aldrieh considered himself the 
leader of the group, and, as a dictatorial type, could not help ordering 
everyone about. Aldrieh also felt somewhat out of place as the only 
member who was not a professional banker. He knew very little about 
the technical aspects of financial operations, previously having been 
content to see to it that the country's laws took care of his business 
for him. Paul "Warburg felt that every question demanded a lecture, 
and he never lost an opportunity to go into a long discourse or to im- 
press the others with the extent of his technical knowledge of banking. 
This often seemed a waste of time, and drew many barbed remarks 
from Aldrieh, so that it sometimes required all the diplomacy of Henry 
P. Davison to keep them at their work. Also, "Warburg's thick alien 
accent grated on them all. As the lone outsider in this clique of Amer- 
ican aristocrats, he realized the delicacy of his position, but neverthe- 
less quarrelled on any occasion concerning technical problems, which 
he considered his personal field. 

One of the main difficulties in working out a monetary reform 
plan which could then be presented as the work of the National Mone- 
tary Commission was to keep hidden the obvious authorship of the 
bill. So great was popular resentment against barikers since the Panic; 
of 1907 that no Congressman would dare vote for a bill bearing the 
"Wall' Street taint, regardless of who had paid his campaign expenses. 
The plan which was being worked out at Jekyl Island was a plan for 
a central bank. There was in American history a long tradition of war 
against inflicting a central bank on the finances of this country, and 
there had until 1896 been a contiuous struggle against a totalitarian 
domination of our financial resources. It had begun with Jefferson's 
fight against Alexander Hamilton's scheme for the First Bank of the 

— 9 — 

United States It had continued "with. Andrew Jackson's successful 
war against Nicholas Biddle's Second Bank of the United States 
(Biddle had been hacked in that fight hy James Rothschild of Paris) ; 
a fight which was a financial Civil "War, and it had resulted in the 
setting-up of the Independent Sub-Treasury System which supposedly 
had kept the United States' funds out of the hands of the great 
hankers. Because our funds were in the Sub-Treasury System, the 
hankers, had precipitated the money panics of 1873, 1893, and 1907, 
causing widespread suffering throughout the country and arousing 
the public to demand that Congress enact legislation to prevent tha 
recurrence of artificially inspired money panics. Such monetary re- 
form now seemed inevitable, and it was to head off and control such 
reform that the National Monetary Commission had been set up with 
the multi-millionaire Nelson Aldrieh at its head. The financiers' inner 
circle was now gathered at Jekyl Island to write banking legislation 
which would protect their interests, legislation which would be pub- 
licized as a "people's banking bill." 

The main problem, so Paul Warburg informed his colleagues, was 
to avoid the name of "Central Bank", and for that reason he had 
come upon the designation of "Federal Reserve System." This would 
allay suspicion in the popular mind that the bill was a central bank 
plan. However, it would still function as a central bank, fulfilling the; 
three main functions in that tradition, that is, it would, be owned by 
private individuals who would draw profit from ownership of shares, 
and who could control the nation's issue of money, it would have at 
its command the nation's entire financial resources, and it would be 
able to mobilize and mortgage the United States by involving 
us in major foreign wars. 

The nest principle consideration was to conceal the fact that the 
proposed "Federal Reserve System" would be dominated by the 
operators of the New York money market. The Congressmen from the 
South and the West particularly could not survive a vote for a Wall 
Street plan. Farmers and small businessmen in these sections had 
suffered most from the repeated money panics, and there had been 
ever since the Revolutionary War considerable amount of popular re- 
sentment igainst Eastern bankers. The private papers and letters of 
Nicholas Biddle, which were not publicly printed until nearly a cen- 
tury after his death, show that even at that time the Eastern bankers' 
had to take into consideration the feeling against them. 

Paul Warburg had already worked out the primary deception 
which would keep the people from recognizing his plan as a central 
bank. This was the regional reserve system, an organization of four 
(later passed as twelve) branch reserve banks located in different 
sections of the country. No person unacquainted with the details of 
the nation's credit structure would be likely to realize that the present 

— 10 — 

concentration, of most of the nation's debt and money in New York 
made the operation of a regional reserve system farcical, since the 
regions would finally he dependent on the amount of money or credits 
available to them from New York. 

Most important of the provisions incorporated in the legislation 
drafted by the financiers was the selection of the a'dministrators of 
the Federal Reserve System. Aldrieh was the first to point out that 
the officials should be entirely appointive offices, and that Congress 
should not have anything whatever to do with them. As an experi- 
enced Senator, he knew that any Congressional control over the ad- 
ministration of the System would embarrass the "Wall Street interests, 
because the hick Congressmen would lose no opportunity to investigate 
irregularities and prove to their constituents that they were fighting 
the traditional enemies, the Eastern bankers. 

Eemoval of the System from Congressional control and super- 
vision made the entire Federal Reserve proposition unconstitutional 
from its inception, because the Federal Reserve would be a bank_ of 
monetary issue, and Congress is expressly charged in the Constitution 
with the issuance of money. Article 1, Section 8, Paragraph 5, states 

COIN. * 

Enactment of "Warburg's Federal Reserve System meant that the 
legislative department of our government would lose its sovereignty, 
and that system of checks and balances of power set up With so great 
a struggle by Thomas Jefferson in the Constitution would be de- 
stroyed. Administrators of the System would control future issue of 
the nation's money and credit, and would themselves be controlled 
by the executive department of the government. The judicial depart- 
ment, (Supreme Court, etc.) already was controlled by the executive 
department through the wangle of appointive offices, and now the 
legislative department would be effectively castrated, making pos- 
sible a rapid centralization of power behind the White House in 

Four years after the passage of the Federal Reserve Act in 1913, 
the United States had been involved in the First World War, and was 
in the grips of an absolute dictatorship of three men, who imprisoned 
anyone who objected to them. A Presidential candidate of the Socialist 
Party, Eugene Debs, was sent to Atlanta prison by Woodrow Wilson 
because Debs failed to applaud the gassing of American youth in 
Flanders .fields. Our heavy industry was under the dictatorship of 

•The Supreme Court has head that the delegation of the coinage prerogative to 
private hankers is " Constitutional because Congress thought it "necessary and 
proper" to do so. "Necessary and proper" says the Court, "means convenient. 
Of course the most "convenient" method of handling a Constutionally delegated 
power is to abdicate that power to private Interests. (McCulloch vs. Maryland, 4 
Wheat 316, i L. ed. 579.) 

— 11 — 

Wall Street gambler Bernard Baruch; food and agriculture were 
under the dictatorship of a London Exchange gold-manipulator, Her- 
bert Hoover, who bad not been in this country as a resident for twenty- 
years prior to his appointment by Woodrow Wilson; and our finances 
were under the dictatorship of Paul Warburg, chairman of the Fed- 
eral Eeserve Board of Governors, whose first allegiance was to his 
family banking house of M. M. Warburg Co. of Hamburg. M. M. 
Warburg was at that time financing the Kaiser's war against us, and 
Paul Warburg's firm of Kuhn, Loeb Co. had five representatives in 
the Treasury Department in charge of Liberty Loans, -thus financing 
our war against the Kaiser. 

Baruch's partner in the Alaska-Juneau Gold Mining Co., Eugene 
Meyer, was head of the War Finance Corporation. Eugene Meyer 
collected commissions on the hundreds of millions of dollars of Liberty 
bonds which he bought from and sold to himself as head of the War 
Finance Corporation to Eugene Meyer and Co., 14 Wall St., New 
York. No wonder he bought control of the enormous chemical trust, 
the Allied Chemical and Dye Corporation, and became a publisher 
in Washington, owner of the extremely leftwing Washington Post, 
the staunch defender of the traitor Alger Hiss. 

With power such as this at stake, it is not to be wondered that 
the Aldrieh group traveled a thousand miles in a sealed railroad car 
to prepare their plans for taking over this country. The writing of 
the plan, however, was only the first step. 

The first serious break in the work of the Jekyl Island group 
came when Senator Nelson Aldrieh deelared that he could not let 
Warburg's proposed designation of "Federal Reserve System" be 
attached to the bill. His name had already been associated in the pub- 
lic mind with monetary reform, and he argued that it would arouse 
suspicion if a bill were put before Congress which did not bear his 
name. Warburg argued in vain that the use of Aldrieh 's name would 
certainly condemn the bill as representing the great Wall Street in- 
terests, for Aldrieh was popularly known for his tariff bills in favor 
of the tobacco trust and the rubber trust. Aldrieh, however, had made 
up his mind that the legislation must bear the name of Aldrieh, and 
he would not hear any objection to it. 

Most of Warburg's suggestions ha'd already been incorporated 
in the bill, and his colleagues saw in this disagreement a chance to 
defeat him on at least one point, so that Warburg found himself? 
alone in his opposition to Aldrieh. Predicting that the name alone 
would make their work in securing its passage much harder, if not 
impossible, he devoted himself to helping them polish up the bill, 
and, some ten days after they had sneaked out of the city, they re- 
turned to New York with a completed financial act which would be 
presented to Congress under the name of "The Aldrieh Plan." 

— 12 — 

The point which "Warburg had most successfully gotten into the 
plan was the matter of a' uniform discount rate, to he imposed on all 
the banks of the United States by the proposed system. This was the 
method employed by the big European central banks about which 
"Warburg knew so much. A discount rate imposed by a central bank 
on. the entire nation meant the power to create a money panic not 
only on the New York money market, as had been the ease in the 
Panics of 1893 and 1907, but also the power to make the money short- 
age a truly nationwide condition. Consequently, there occurred the 
Agricultural Depression of 1920-21, and the Great Depression of 
1929-31, for both of which, as we shall see, the Federal Reserve Sys- 
tem was directly responsible. 

In Paul Warburg's Memorandum, quoted in the official biog- 
raphy of Nelson Aldrieh, "Warburg said: 

"The matter of a uniform discount rate was discussed and 
settled at Jekyl' Island. " 

Although this was "Warburg's single reference to Jekyl Island, 
(a' twenty-five hundred page work by him on the Federal Reserve 
System fails to mention this group in any way), the other members 
of the "First-Name Club" were not so reticent. In an article in the 
Saturday Evening Post, in 1935, Yanderlip went into detailed dis- 
cussion of the Jekyl Island adventure. He said, in introducing the 
event, that: 

"Despite my views about the value to society of greater publicity 
for the affairs of corporations, there was an occasion, near the end 
of 1910, when I was as secretive, indeed as furtive, as any conspirator. 
Since it would have been fatal to Senator Aldrieh's plan to have it 
known that he was calling on anybody from Wall Street to help him 
in preparing his Bill, precautions were taken that would, have de- 
lighted the heart of James Stillman (President of the National City 
Bank during the Spanish- American War)." 

Frank Yanderlip further states, in his autobiography, "From 
Farmboy to Financier": 

"Our secret expedition to Jekyl Island was the occasion of the 
actual conception of what eventually became the Federal Reserve 
System. The essential points of the Aldrieh Plan were all contained 
in the Federal Reserve Act as it was passed " 

In a preface written for a group of Warburg's essays calling for 
a central bank. Professor E. R. A. Seligman, of the international 
banking family, head of the Dept. of Economics of Columbia Uni- 
versity, said: 

"The Federal Reserve Act is the work of Mr. Warburg more than 
of any other man in the country." 

The facts bear out Mr. Seligman 's statement. 

— 13 — 

Chapter Two 

"With the return of the Jekyl Island group to New York, the 
financiers now sponsored a nationwide propaganda movement to sell 
the people on ££ The Aldrich Plan." All national hanks were forced 
to contribute to a slush fund of five million dollars, and the great 
universities were used as strongholds of propaganda, abetted by the 
university presidents and the professors of economics. 

Woodrow Wilson, President of Princeton University, was the 
first prominent educator to speak in favor of the Aldrich Plan, a 
gesture which immediately brought him the Governorship of New 
Jersey and later the Presidency of the United States. During the 
Panic of 1907, Wilson had declared that: "All this trouble could be 
averted if we appointed a' committee of six or seven public-spirited 
men like J. P. Morgan to handle the affairs of our country." This 
plea for a financial dictatorship had brought him favorable notice 
from the bankers, and he had been invited by Frank Vanderlip to si 
luncheon with James Still man, then President of the National City 
Bank. Stillman afterwards remarked to Tanderlip that "Wilson was 
not a great man. Nevertheless, the support of the National City Bank 
gave "Wilson the Presidency of the United States after Wilson promised 
to enact the Federal Reserve Act. 

Much of the bankers' campaign fund was spent under the 
auspices of an organization called the National Citizens' League, 
which was not national and might properly have been called an econ- 
omists' league, since it was made up principally of college tea'ehers 
who wished to get on in the world. It was headed by J. Laurence 
Laughlin, the most prominent gold standard economist in the country, 
and head of the Department of Economics at RockfeEer's University 
of Chicago. The League soon numbered among its members most of 
the economists and college presidents in the East and Middle West. 
The League printed and distributed many abstruse and technical 
volumes pointing out the need for a central bank and other featured 
of "monetary reform." 

The Aldrich Plan was presented to Congress as the result of 
three years of work, study, and travel of the National Monetary Com- 
mission, at an expense of more than three hundred thousand dollars. 
Actually, only two members of the Commission had anything to do 
with the plan, Senator Aldrich and A. Piatt Andrew, who was not a 
member of the commission but a Special Assistant. The other members 
had a two year joyride around Europe and cheerfully signed every- 
thing which Aldrich asked of them. 

In 1911, the Aldrich Plan became the official platform of the 
Republican Party. This was a case of the broom riding the witch, 
for the Republican Party had ever since the Civil War fought bit- 

— 14 — 

terly all efforts at monetary reform up to 1910, and had spent the- 
largest sum of money employed in a Presidential campaign up to that 
time, in the campaign against "William Jennings Bryan in 1896. 
Bryan "was running on a campaign of monetary reform, and was- 
arousing such response that international bankers here and in Europe- 
poured money into a Republican fund and purchased votes by the 
million. The amount of money spent in that campaign has never been 
determined with any degree of aeeura'cy, but subsequent Congres- 
sional investigations put the figure at from six to eighteen millions 
of dollars. The same bankers who had given money to fight monetary 
reform in 1896 were in 1911 giving liberal donations to see that 
reform legislation was enacted 

The Republican Party had become identified as the representative, 
of the conservative classes in money matters, and its sudden about- 
face on this issue caused some suspicion. Monetary reform had until 
this time been the preserve of the Democratic Party. "William Jennings 
Bryan had very nearly secured the Presidency on a bimetalism plat- 
form, although as he remarked to the economist Arthur Kitson, "Free 
silver is only window-dressing. The real issue is the control of the 
nation's money and credit." As the candidate of the Democratic 
Party, Bryan had made his famous "Cross of Gold" speech, in which, 
he enjoined the New York bankers not to crucify the American citi- 
zen on a cross of gold. They did not listen to him. 

There were still in 1911 many independent and pubnc-minded 
newspapers, whose editors were not in the pay of bankers and whose* 
mortgages were not subject to foreclosure from New York. These 
editors saw in the Aldrieh Plan its concealed threat to their com- 
munities, and began a forceful and vigorous campaign against it. 
They pointed out, as Paul Warburg had foreseen, that Senator- 
Nelson Aldrieh did not represent the common people of this country, 
or anyone else who had less than a million dollars, and there was 
plenty of evidence to prove it. Consequently a nationwide opposition 
sprang up against the Aldrieh Plan. The outcry against it created 
an atmosphere favorable to passing the same plan under the spon- 
sorship of Woodrow Wilson and the Democratic Party as the Federal 
Reserve Act of 1913. 

Louis Brandeis led the fight against the Aldrieh Plan in the 
Harper's Weekly with a series of articles on the Great Money Trust. 
The period in literary history to be known as the ' 'muckraking ' ' period 
was then in full swing. Ida Tarbell wrote a series of articles in the 
American Magazine exposing Senator Aldrieh 's illegal activities, and 
a definitive history of Rockefeller's Standard Oil, pointing out that 
Rockefeller's gigantic expansion would not have been possible without 
the funds advanced to him by the National City Bank and Kuhn, 
Loeb Co. 

— 15 — 

Miss Tarbell graphically described the poverty in ■which the 
workers in Aldrieh's factories lived, while he grew orchids in hot- 
houses within sight of the slums. Aldrieh had secured Senate ap- 
proval for the great trusts formed in the last decade of the nineteenth 
century, and he himself was a partner in two of the largest of these 
corporations, the tobacco trust formed with Duke a's its head, and 
the rubber trust, led by Rockefeller and Guggenheim. The technical 
aspects of handling these great mergers were perfected by a brilliant 
young financier named Bernard Baruch, who was just coming into 
prominence on Wall Street. 

Harper's "Weekly of May 7, 1910, editorially commented that 
"Finance and the tariff are reserved by Nelson Aldrieh as falling 
within his sole purview and jurisdiction. Mr. Aldrieh is endeavoring 
to devise, through the National Monetary Commission, a banking and 
currency law. A great many hundred thousand persons are firmly of 
the opinion that Mr. Aldrieh sums up in his personality the greatest 
and most sinister menaee. to the popular welfare of the TJnited States. 
Ernest Newman recently said 'What the South visits on the Negro 
in a political way, Aldrieh would mete out to the mudsills of the 
North, if he could devise a safe and practical way to accomplish it'." 

The Aldrieh Plan was a safe and practical way to accomplish the 
desires of Aldrieh and his class, as was the Federal Reserve Act. 
Aldrieh was a dictator of the banker type which the Communists dur- 
ing the 1920's were to make immortal, the "bloated capitalist" of 
whom J. P. Morgan became the symbol. The organizers of the trusts 
had completed most of their work in the previous twenty years, and 
it was up to them now to secure their gains. This could be done only 
through control of money and credit, for, under out financial system, 
ownership of the trusts could not be maintained if somebody came 
along with more money to buy them. Rubber, steel, heavy industry, 
railways and public communications were securely in the hands of 
a few family dynasties, as Ferdinand Lundberg proves, in his authori- 
tative work, "American's Sixty Families." The Guggenheims, Selig- 
mans, Sehiffs, Warburg, Baruehs, Lehmans, and their satellites, eon- 
trolled banking and politics. It was certain that the power of these 
trusts could be attacked in only two ways, by uncontrolled money, 
and by uncontrolled popular movements which might gain a majority 
in Congress and force the oligarchy to give way. Thus, the movement 
for monetary reform coincided with' the . great reform movement 
which was designed to corral and emasculate any popular protests 
against the international elements. Theodore Roosevelt provides an 
excellent example of this, accepting $500,000 in campaign funds from 
Schiff and Morgan in 1904 while he wa's stomping up and down the 
country bellowing about what he was going to do to the trusts. The 
trusts survived his term of office. 

— 16 — 

The Sherman Anti-Trust Aet and the Clayton Anti-Trost Act 
were "written by the oligarchy for the oligarchy, to prevent anyone 
•else from breaking into the circle after things had been set np. The 
result of these "anti-trust" laws has been to render the big corpora- 
tions secure from popular interference. Thurman Arnold writes in 
■"The Folklore of Capitalism" that-. 

"The anti-trust laws were the greatest encouragement to the 
forming of the great corporations." 

This was due to the fact that only the giant aggregations of cor- 
porate interests could survive the legal entanglements created by gov- 
•erment legislation. Small outfits, unable to afford the services of a 
large leg?,! and administrative staff, were forced to sell out to the 
trusts. A new profession, that of corporation lawyer, sprang up to 
devise Ways to make the government helpless to regulate the trusts. 
The Attorney General could bring suit against a corporation to dis- 
solve a "conspiracy in restraint of trade", but, by the time he had 
■secured a court order and begun legal action, the corporation's law- 
yers would have worked out a new and more foolproof organization. 
Also, the Attorney General's dissolution of corporations and their 
subsequent reforming was usually a highly profitable event for the 
owners. Such a reforming meant that the stocks of the old corporation 
could be manipulated on "Wall Street while action was pending, and 
"the forming of a new organization meant a large issue of stock, most 
of which would be over-capitalization, so the net result of a' Depart- 
ment of Justice action against a corporation often meant the reaping 
•of more millions of dollars for the interests which the Government 
pretended to attack. 

The era of the trust as a dynamic political force had been in- 
augurated in 1890, when New Jersey passed a law permitting cor- 
porations holding incorporations in New Jersey to hold the stock of 
other corporations, thus permitting the abuse of interlocking direc- 
torates, which allow a few men to exercise direct control in many cor- 
porations, some of which are supposedly competitors. 

The farcical nature of the "reform Presidents" is shown by the 
record of the first of them, Theodore Eoosevelt, who has been nick- 
named, perhaps derisively, as the "trust-buster". His friend and 
financial adviser Colonel Ely Garrison remarks in his memoirs that 
"Wall Street had no cause for hysteria' at the election of Theodore 
Roosevelt, for any serious student of history knows that the Depart- 
ment of Justice's investigations of Northern Securities and Standard 
'Oil (both Kuhn-Loeb Co. enterprises) were initiated before 
Roosevelt's election and carried on without his approval." 

Theodore Roosevelt also hated the writers who were doing factual 
research into the activities of the trusts, people like Upton Sinclair, Ida 
'Tarbell and Frank Norris. It was his private secretary, William Loeb, 
Jr., who coined the name "muek-raker" for them. 

— 17 — 

The reform movement, although, principally bought out and cor- 
rupted, was not without honest spokesman in Congress. Chief among 
them were Senator La-Follette of "Wisconsin in the Senate, and Con- 
gressman Charles Augustus Lindbergh of Minnesota in the House of 
Representatives. Both of these men attacked the Aldrieh Plan as a 
"Wall Street Plan", and through their forceful speeches attracted the 
people's interest in the doings of the money trust. Their charges 
eventually resulted in the Pujo Committee Hearings, a Gilbert and 
Sullivan investigation of the New York bankers at which neither Lind- 
bergh nor LaFollette were invited to officiate or to appear. 

Jacob Schiff, senior partner, of Kuhn, Loeb Co. had said in a 
speech before the Chamber of Commerce of New York, shortly before 
the Panic of 1907 : 

"Unless we have a central bank with adequate control of credit 
resources, this country is going to undergo the most severe and far- 
reaching money panic in its history." The powerful banker's threat 
soon became a reality. The Panic of 1907, which occurred in a good 
crop year, when industry was productive and the country enjoyed 
a general prosperity, aroused 'public indignation and forced Congress 
to take a token action against a recurrence by passing the Aldrich- 
Vreeland Act of 1908. This Act provided for the issuance of currency 
against securities in ease of another money panic. Its provisions were 
put in use only during the la'st months of its being, in the early part of 
1914, when the sudden withdrawal of large sums of European gold 
from this country, occasioned by the beginning of the First World 
War, caused a temporary money stringency. The Federal Reserve 
Act, although already law, was not yet in operation, and the Aldrich- 
Vreeland Act was used as the basis for issuing four hundred million 
dollars to cover a loan due the firm of J. P. Morgan Co. from the 
Bank of England. 

The real purpose of the Aldrich-Vreeland Act was the creation 
of a National Monetary Corn-mission. Any prospective monetary 
legislation coming to Congress in the next few years would haVe to be 
referred to this body, which effectively prevented the public indigna- 
tion from manifesting itself in any constructive form. Two years and 
$300,000 later, under the leadership of Senator Nelson Aldrieh, the 
National Monetary Commission advanced Paul Warburg's Federal 
Reserve Plan under the name of the Aldrieh Plan. 

On March 2, 1911, the New York Chamber of Commerce officially 
adopted a plan of its Special Currency Committee, of which Paul 
Warburg was then Chairman, for a Central Reserve Bank. This was 
the same as the Aldrieh Plan, except for the distribution of reserves. 
This plan openly provided for the centralized reserves to be kept in 
New York, and was immediately branded as the official Wall Street 
plan, to divert attention from the Wall Street sympathies of the 
Aldrieh Plan. 

— 18 — 

The campaign for the Aldrich Plan was sincere, in that Aldrich 
and its supporters in the Republican Party honestly believed that 
they could win with it and get it enaeted into law. More than likely 
they could have, had they had anyone less notorious than Nelson Aid- 
rich as its head. The Federal Reserve Act, the official platform, of 
Woodrow "Wilson and the Democratic Party in 1912, was in all its 
essentials the same plan for a central hank, and was promoted by the 
same New York banking interests. It was an alternate stratagem 
which made it impossible for the bankers to lose. No matter who 
won the election, they would get their . central bank. 

The propagandists for the Aldrich Plan carried on their fight 
without regard for oposition, as evidenced by the following testimony 
of Andrew Frame, member of ' the Executive Committee of the 
American Bankers' Association, testifying before the House Banking 
and Currency Committee in 1913. Andrew Frame represented a group 
of "Western bankers who were relatively free from the domination of 
the New York money market, and who were traditionally an opposi- 
tion group in the American Bankers' Association: 

CHAIRMAN CARTER GLASS : ""Why didn't the Western 
bankers make themselves heard when the American Bankers' As- 
sociation gave its unqualified, and, we are assured, unanimous ap- 
proval of the scheme proposed by the National Monetary Commission? 

ANDREW FRAME: I'm glad you called my attention to that. 
When that monetary bill was given to the country, it was but a few 
days previous to the meeting of the American Bankers' Association 
in New Orleans in 1911. There was not one banker in a hundred 
who had read that bill. "We had twelve addresses in favor of it. 
General Hamby of Austin, Texas, wrote a letter to President Watts 
asking for a hearing against the bill He did not get a very courteous 
answer. I refused to vote on it, and a great many other bankers did 

MR. BULKLEY: Do you mean that no member of the As- 
sociation could be heard in opposition to the bill? 

ANDREW FRAME: They throttled all argument. 

MR. KINDRED: But the report was given out that it was 
practically unanimous. 

ANDREW FRAME: The bill had already been prepared by 
Senator Aldrich and presented to the executive council of the Amer- 
ican Bankers' Association in May, 1911. As a member of that council, 
I received a copy the day before they acted upon it. When the bill 
came in at New Orleans, the bankers of the United States had not 
read it. 

MR. KINDRED : Did the presiding officer simply rule out those 
who wanted to discuss it negatively? 

ANDREW FRAME: They would not allow anyone on the 
program who was not in favor of the bill. 

— 19 — 

CHAIRMAN GLASS : "What significance has the fact that at the 
next annual meeting of the American Bankers' Association held at 
Detroit in 1912, the Association did not reiterate its indorsement of 
the plan of the National Monetary Commission, known as the Aid- 
rich scheme ? 

ANDREW FRAME : It did not reiterate the indorsement for the- 
simple fact that the backers of the Aldrich Plan knew that the As- 
sociation -would not indorse it. "We were ready for them, and they did 
not bring it up." 

Andrew Frame was an honest American banker with no inter- 
national allegiances, and his testimony received little attention from. 
Carter Glass, who was looking for New York capital to finance his 
Lynchburg Steel Co. Therefore, Chairman Carter Glass called before- 
the House Co mmi ttee one of the ten most powerful bankers in 
America', and one about whom least is known, George Blumenthal, 
partner of the international banking house of Lazard Freres and 
brother-in-law of Eugene Meyer, Jr. 

Glass effusively welcomed the Blumenthal, saying that "Senator 
0 'Gorman of New York was kind enough to suggest your name to us. " 
0 'Gorman figured a year later in preventing a Senate Committee 
from asking his master, Paul "Warburg, any embarrassing questions, 
before appointing "Warburg the first Governor of the Federal Reserve 

George Blumenthal stated that "Since 1893 (the year of the great 
Sehiff -inspired paiiic) my firm of Lazard Freres has been foremost in 
importations and exportations of gold and has thereby eome in con- 
tact with everybody who had anything to do with it." 

Congressman Taylor asked him "Have you a statement there 
as to the part that you have had in the importation of gold into the 
United States V Taylor asked this because the Panic of 1893 is known 
to economists as a classic example of a money panic caused by gold, 

"No," replied George Blumenthal, "I have nothing at all on that, 
because it is not bearing on the question. ' ' 

Blumenthal was quite right. The question was whether Congress- 
could- deliver over the American people, lock, stock, and barrel into 
the hands of the international financiers, and it was a waste of time 
to discuss the past crimes of the bankers. They wanted the Federal 
Reserve Act to provide a government agency which would back them 
up and help them promote their illegal schemes, and this it has done. 

Marriner Eceles, who was Governor of the Federal Reserve Board 
for the duration of the Roosevelt Regime, 1933-45, recently published 
his autobiography, "Beckoning Frontiers", an inspiring title of whieh 
the book is a complete refutation, for he pleads to close up frontiers 
and opportunities for individualism. Like his querulous dictator, F. D. 

— 20 — 

Roosevelt, Marriner Eeeles hated freedom. Eccles in this book makes 
a lengthy presentation of his favorite theory, the compensatory 

The compensatory economy provides that when bankers and 
speculators clean out the people and bring them to their knees, gov- 
ernment agencies shall step in and help them np so that they can be 
fleeced again. This is the function of such agencies as the Securities 
Exchange Commission, Reconstruction Finance Corporation, and 
dozens of others. The theory of the compensatory economy supplants 
all morality in public life, and is responsible for much corruption of 
officials in 'Washington. Thus, also, the predilection of the internation- 
al bankers for putting ignorant provincials into key positions is not 
an idle fancy, and is perhaps reason for much incessant publicity for 
democracy. It suits the internationals that public officials should be 
of the stupidest type, and the guise of democracy effectively controls 

During the 1920 's, the role of the Federal Reserve System and of 
the Governors of the Federal Reserve Board was nothing more than 
influential bond salesmanship for such firms as J. & "W. Seligman 
Co. and Kuhn, Loeb Co. of New York. Albert Strauss, partner of J. 
& "W, Seligman was a Governor of the Board in the 1920 's, and under 
his capable leadership (he was with Barueh at Paris in 1919), the 
System made it possible for the New York bankers to sell those foreign 
bonds by its easy money policies which it followed throughout the 
1920 's. At no time during these years did the System exercise its dele- 
gated responsibility of protecting the American bond-purchaser by 
warning them that the bonds were being issued on poor or nonexistent 

Edward B. Vreeland, New York subway owner and co-author of 
the Aldrich-Vreeland Act of 1908, wrote in the August 25, 1910, In- 
dependent (owned by Aldrieh) that ' 'Under the proposed monetary 
plan of Senator Aldrieh, monoplies will disappear, because they will 
not be able to make more than four per cent interest, and monopolies 
cannot continue at such a low rate. Also, this will mark the disap- 
pearance of the Government from the banking business." 

Just what Mr. Vreeland meant by the Government getting out of 
the banking business is not clear, unless he meant that in the future 
the Government would have to pay rent on its own credit, or that the 
Government's credit would be turned over to private individuals to 
use for their own profit, in the classic tradition of the central bank. 
The 145 million dollars worth of stock sold in the Federal Reserve 
Banks in 1914 was worth, thirty-five years later, more than forty- 
five billion dollars. It was certainly worth somebody's time and effort 
to get the Government out of the banking business. 

Nation Magazine of J anuary 19, 1911, noted that ' ' The name of 

— 21 — 

Central Bank is carefully avoided, but the 'Federal Reserve Associa- 
tion', the name given to the proposed central organization, is endow- 
ed with the usual powers and responsibilities of a European Central 

After the National Monetary Commission had returned from 
Europe, it held no official meetings for nearly two years, nor did it 
ever offer any records or minutes showing who had written the Aid- 
rich Plan. Since they had held no meetings, the members of the Com- 
mission could hardly claim the Plan as their own. The sole tangible 
result of the Commission's three hundred thousand dollar expenditure 
was a library of thirty massive volumes on European banking, none 
of which directly engaged the financial problems of the United 
States. Typical of these works is the thousand page history of the 
Eeiehsbank, the central bank which controlled money and credit in 
Germany, and whose principal stockholders were Paul "Warburg's 
family house of M. M. Warburg Co. The Commission's records show 
that it rarely functioned as a deliberative body. Senator C ummins 
passed a resolution in Congress ordering the Commission to report on 
January 8, 1912, and show some constructive result of its three years' 
work. In the face of this challenge, the National Monetary Commission 
ceased to exist. 

The Aldrich Plan received sound opposition from such writers 
as "Wilbur L. Stonex, who said, in the North American Eeview of 
September, 1911: 

"Senator Aldrich would take from the people and give to the 
bankers the absolute control of the people's money. It is apparent 
that in such a body of bankers there would be no opportunity for 
the people, or their representatives, to make their wishes known ef- 
fectively, if their wishes conflicted with those of the banking in- 

It is significant that the North American Eeview, like many 
other periodicals which criticized the aims and purposes of the in- 
ternational bankers, has disappeared from the American scene, 
while other periodicals, like the Nation, have had to change their 
tune, and favor the international bankers, after Maurice Wertheim 
of Hallgarten Co. bought control of its stock. 

This history of the Federal Reserve Board since 1914 shows that 
there has never been a method or opportunity for a citizen to proteet 
his interests when the. Board has decided upon a change of policy 
in the interest rate or in their open market operations. Carter Class 
fought all efforts to exclude or limit membership of bankers on the 
Board of Governors of the System, and he was abetted in this effort 
by Cordell Hull and other powerful Democratic Congressmen in 
1913. Glass pointed out that if some of the restrictions of members 
of the Board were enacted, we would be turning over supervision 

— 22 — 

of our banks to mechanics and farm laborers. Glass' horror at this idea 
is somewhat strange, since a number of mechanics and farm laborers 
voted to send him to Congress again and again for thirty years. Also, 
mechanics in their unions and farm laborers in cooperative associa- 
tions have done about as good a job in keeping up their credit as 
have most American bankers. 

Congressman Charles A. Lindbergh of Minnesota was one of the 
most forceful speakers against the Aldrich Plan. He said on the floor 
of the House of Eepresentatives on December 15, 1911: 

"The Aldrich Plan is the Wall Street Plan. It is a broad chal- 
lenge to the Government by the champion of the Money Trust. It 
means another panic, if necessary, to intimidate the people. Aldrich, 
paid by the Government to represent the people, proposes a plan for 
the trusts instead. It was by a very clever move that the National 
Monetary Commission was created. In 1907 nature responded most 
beautifully and gave this country the most bountiful crop it had ever 
had. Other industries were busy too, and from a' natural standpoint 
all the conditions were right for a most prosperous year. Instead, 
a panic entailed enormous losses upon us. "Wall Street knew the 
American people were demanding a remedy against the recurrence of 
such a ridiculously unnatural condition. Most Senators and Eepre- 
sentatives fell ito the "Wall Street trap and passed the Aldrich-Tree- 
land Emergency Currency Bill. But the real purpose was to get 
a monetary commission which would frame a proposition for amend- 
ments to our currency and banking laws which would suit the Money 
Trust. The interests are now busy everywhere educating the people in 
favor of the Aldrich Plan. It is reported that a large sum of money 
has been raised for this purpose. Wall Street speculation brought on 
the Panic of 1907. The depositors' funds were loaned to gamblers 
and anybody the Money Trust wanted to favor. Then when the deposi- 
tors wanted their money, the banks did not have it. That made the 

Chapter Three 

The speeches and writings of Senator LaFollette and Congress- 
man Lindbergh had become rallying points for opposition to the Aid- 
rich Plan in 1912. They had also aroused popular feeling against the 
power of the Money Trust, so that Congress was forced to consider 
taking action. Congressman Lindbergh said: 

"The government prosecutes other trusts, but supports the money 
trust. I have been waiting patiently for several years for an op- 
portunity to expose the false money standard, and to show that the 
greatest of all favoritism is that extended by the government to the 
money trust." 

— 23 — 

Senator LaFollette made a speech, charging that a money trust 
of fifty men controlled the nation, George F. Baker, partner of J. P. 
Morgan, on being queried hy reporters as to the truth, of this sen- 
sational accusation, replied that it was absolutely in error. He said 
that he knew personally that not more than eight men ran this 

Nation magazine replied editorially to Senator LaFollette that : 

"If there is a Money Trust,' it will not be practical to establish 
that it exercises its influence either for good or for bad." 

The editors of the Nation apparently had never heard of the 
Panic of 1907. However, it certainly was not practical to establish the 
power of the Money Trust. Senator LaFollette remarks in his Mem- 
oirs that that speech cost him the Presidency of the United States, 
just as WoOdrow Wilson's speech in favor of the Aldrieh Plan had 
brought him at once to .consideration for that office. 

Despite the Nation's high-minded detachment, there did seem to 
be plenty of evidence that the Money Trust exercised its influence 
for bad. Not only was it despoiling the natural resources of the 
United States at a rapid rate, but it was not above the most ruthless 
application of gangster tactics in politics. 

Congress finally made a gesture of appeasing popular feeling by 
appointing a committee to investigate the control of money and credit 
in the United States. This was the Pujo Committee, which conducted 
the famous "Money Trust" hearings in 1912, under the leadership 
of Congressman Arsene Pujo of Louisiana. 

The testimony given at these hearings, which dragged on for 
five months, made four volumes of some six thousand pages. The bank- 
ers, month after month, made the train trip down to "Washington from 
New York, testified before the Co mmi ttee, and returned to New York. 
The hearings were extremely dull, and those who had expected that 
much startling information would be turned up at these examinations 
were disappointed. The bankers solemnly agreed that they were bank- 
ers, insisted they operated in the public's interest, and claimed that 
they were animated by the highest ideals of public service, like the 
Congressmen. Insofar as the hearings Were concerned, this seemed to 
be true. The bankers were asked few questions which were embarrass- 
ing, and nothing was brought out which the public might have been 
excited by. The newspapers played up the hearings, carrying head- 
lines each day about the Money Trust, but the paragraphs below the 
headlines had little in them that was interesting. 

The nature of the hearings may be better understood if we look 
at the man. who single-handedly carried on the entire investigation, 
Samuel Untermyer. He was also one of the main contributors to 
"Woodrow "Wilson's campaign fund. Untermyer was one of the wealth- 
iest corporation lawyers in New York. He states' in his autobiography 

— 24 — 

in "Who's Who in American Jewry" of 1926, that he once received 
a -$775,000 fee for a single legal transaction, the carrying through of 
the merger of the Utah Copper Company and the Boston Consolidated 
and Nevada Company, a firm which had at that time a market value 
of more than a hundred million dollars. A man who could make near- 
ly a million dollars in one operation would not be likely to sincerely 
attack the wealthy men of his own class. 

Neither Lindbergh nor LaEollette, who were responsible for the 
Money Trust Hearings, were asked to testify or aid in the investiga- 
tion. A great deal of favorable publicity accrues to politicians as- 
sociated with such hearings, and the bankers did not wish either of 
these men to be noticed by the public. 

Samuel Untermyer was Special Counsel for the Pujo Committee. 
The Congressional members of the Committee, including its chairman, 
Arsene Pujo, seem to have been struck dumb from the moment of the 
hearings' commencement to their conclusion. An examination of the 
thousands of pages of minutes reveals that these eleven Congressmen 
did not ask a dozen questions apiece during the months of investiga- 
tion. One of these silent servants of the public was James Byrnes, of 
South Carolina, who later achieved fame as Bernard Barueh's man in 
charge of the Office of War Mobilization during the Second World 
War : 

Such delicate subjects as the system of interlocking directorates 
by which a few bankers controlled the nation's finance and heavy 
industry were not gone into at the Pujo Committee hearings, nor did 
Samuel Untermyer see fit to dwell upon such items as international 
gold movements ( the cause of money panics), or the international 
relationships between American bankers and European bankers. The 
international banking houses of Eugene Meyer, Lazard Preres, J. & 
W. Seligman, Speyer Brothers, M. M. Warburg, and the Rothschild 
brothers, did not arouse Mr. TJntermyer's curiosity, although it was 
known that all of these family banking houses either had branches 
or controlled banking houses in New York City. When Jacob Sehiff 
appeared before the Committee, Mr. TJntermyer's adroit questioning 
allowed Schiff to talk for some minutes without revealing any in- 
formation about the banking house of Kuhn, Loeb Co., which Senator 
Robert L. Owen had defined as the representatives of the European 
Rothschilds in New York. 

The aging J. P. Morgan, with only a few more months to live, 
came before the Committee to justify a half-century of financial 
piracy. He stated for Mr. TJntermyer's edification that "Money is a' 
commodity." Mr. Untermyer did not quarrel with that statement. 

J. P. Morgan also declared that, in making a loan, he always con- 
sidered a man's character before any other factor ; even the man's col- 
lateral or his ability to repay were not as important. This astonishing 

— 25 — 

observation startled the blase members of the Committee. Here was a 
banker who began Ms career by swindling bis own government. He sold 
faulty rifles to tbe Union Government at a great profit during tie 
Civil "War, collecting bis money from tbe Treasury before be paid for 
his original purchase. He was charged with defrauding the United 
States. In 1895, he forced President Grover Cleveland to purchase a 
hundred million dollars worth of gold from the Eothschild brothers 
after threatening to paralyze the country with another money panic. 
Mr. Untermyer, however, did not touch upon these incidents in the 
great man's career. 

The farce of the Pujo Committee finally ended The country was 
convinced that the New York bankers did have a monopoly on the 
nation's money and credit. However, the bankers and their subsidized 
newspapers claimed that the only way to break that monopoly was to 
enact the banking the currency legislation then before Congress, the 
bill which was to be passed in the following year a's the Federal Pre- 
serve Act. The New York monopoly was to be broken by turning over 
ad-ministration of the System to the most powerful of the New York, 
bankers, Paul "Warburg. 

Chapter Pour 

The Pujo Committee was the last important publicity which the 
Federal Reserve Act received before being passed in December, 1913. 
The man who signed it Was President Woodrow "Wilson, who there- 
fore is thought to be its author. "Wilson was elected President of the 
United States in 1912 on a monetary reform platform. He promised 
the people of this country that he would give them a money and 
credit law which would be free from "Wall Street influence. At last, 
he declared, our citizens were going to enjoy the benefits of their 
own credit, as Thomas Jefferson had intended and provided for in 
the Constitution: 

However good were "Woodrow Wilson's intentions, he wa& limited 
by the fact that he had been put into office by the biggest "Wall 
Street banking house of them all, Paul Warburg's firm of Kuhn, 
Loeb Co. His campaign for the Presidency had been entirely financed 
by Cleveland H. Dodge, of Kuhn, Loeb's National City Bank, 
Jacob Schiff, senior partner in Kuhn, Loeb Co., Henry Morgenthau, 
Sr., Bernard Baruch, and Samuel Untermyer. "With such a back- 
ground, as well as his earlier speeches in favor of the Aldrich Plan 
and his outspoken reverence for J. P. Morgan, the new, Everyman's 
Woodrow "Wilson smacked of ineffectuality, if not downright hy- 

"Woodrow "Wilson appeared before the people during his cam- 
paign with a monetary reform bill written by H. Parker "Willis, and 

-^26 — 

officially sponsored by the Democratic Party. A study of this new 
bill revealed a remarkable similarity to the Aldrieh Plan. The more 
idealistic, and, to the bankers, unrealistic provisions of the bill, pro- 
viding for others than bankers to aohninister it, were soon deleted by 
Carter Glass 3 House Banking and Currency Committee. 

Despite the apparently clean background of the Democratic 
Party's bill, known as the Federal Reserve Act, it was not favorably 
received by the country at large, and some newspapers were unkind 
enough to point out its close kinship to the discredited Aldrieh Plan. 
With such popular opposition already manifesting itself against the 
people's choice, "Woodrow Wilson, Congress did not wish to pass; 
the bill. It required all the political strength of "William Jennings! 
Bryan, the dominant power in the Democratic Party, to get Congress 
to pass the Act. 

The Federal Eeserve Act, although it was a brother to the Ald- 
rieh Plan, was ballyhooed as a people's plan. It promised the 
American people everything. First of all, it promised to liberate the 
farmer from his yearly needs for credit to get his crops harvested 
and send them to market. Heretofore, he had had to go to the 
bank and mortgage his property for that money. According to the 
Act's proponents, he could get plenty of credit at the Reserve Bank. 
This was a bid to get the National Granges to come out in favor o£ 
the bill, but they did not rise to the bait. They refused to endorse it, 
pointing out that its control techniques were not likely to benefit 
anybody but the bankers, and this was proved when the Federal Re- 
serve System caused the Agricultural Depression of 1920-21. 

The next benefit of the Federal Reserve Act, it was claimed, 
was that it would stabilize the monetary unit and give the dollar a 
consistent and balanced purchasing power. This was the provision 
insisted upon by Senator Robert L. Owen, co-author of the Owen- 
Glass Act, as the Federal Reserve legislation was known in Congress. 
Glass struck out this stabilization provision. Senator Owen later 

"I was unable to keep this mandatory provision in the bill be- 
cause of the secret hostilities developed' against it, the origin of which 
at that time I did not fully understand." 

The Federal Reserve Act as signed, by Woodrow Wilson con- 
tained no stabilization mechanism, but it did contain plenty of fac- 
tors which would make stabilization impossible. Its manipulation of 
the discount rate to vary the amount of money in circulation, and 
its open market operations, dumping quantities of Government se- 
curities on the New York Exchange or TOthholding them to create 
credit expansion or contraction, were the conditions directly re- 
sponsible for the greatest disaster this country has ever suffered, 
the Great Depression of 1929-31. 

— 27 — 

The hostility of the influences behind the Federal Beserve Act 
towards any kind of monetary stabilization hate been expressed in the* 
official publications and statements of the Governors. Marriner Eccles, 
Chairman of the Board of Governors of the Federal Beserve System, 
issued a Memorandum March 13, 1939, stating that : 

"The Board of Governors of the Federal Beserve System opposes 
any bill which proposes a stable price level." 

Another bit of propaganda for the Federal Beserve Act in 1913 
Was the claim that it would perform, many banking services for the 
Government without charge. At the Senate OPA Hearings in' 1941, 
Representative "Wright Patman inquired of Marriner Eccles: 

"Governor Eccles, when did tbe Federal Beserve System start 
charging the Government agencies a service charge?" 

"I really .could not say," replied Mr. Eccles. 

""Wasn't it intended when the Federal Beserve Act was passed 
that the Federal Beserve Bank would render this service without 
charge — since under the Act the Government would give them the 
use of the Government's credit free?" asked Mr. Patman. 

"I wouldn't think so," asnwered Mr. Eccles. 

To get the Federal Beserve Act made into law, the main lie used 
was in the flood of speeches and writings poured out in favor of it, was 
the claim that the nation's money and credit would be released from 
the domination of a few Wall Street Bankers. The findings of the Pujo 
Committee were used to frighten the people into submitting to the 
monetary monster which had them at its mercy. Tou have got to save 
yourselves, the spokesmen for the Federal Beserve Act declared, and 
your saviour is this Federal Beserve System. These spokesmen, led 
by Bepresentative Carter Glass of Virginia, said that they had devised 
the perfect way to emasculate the power of Wall Street, namely, the 
regional reserve system, which would divide the country up into eight 
or twelve reserve bank districts, depending oh whether Mr. Glass or 
Mr. Warburg made the final choice. Each of these districts would 
have equal power and equal representation in the administration of 
the entire reserve system. It was a completely democratic and almost 
perfect solution. Under the Glass (or Warburg) proposal, Kalisas City 
or Denver would have as much eontrol over the nation's money and 
credit as New York 

There was only one thing wrong with Glass' system. It ignored 
the fact that the nation's money market was in New York. Even 
Marriner Eccles knew that, for he stated at the OPA Hearings that : 

"New York is the only money market you have in this country."' 
This meant that these other reserve banks would have to go to the 
Federal Beserve Bank of New York whenever they wanted anything, 
and that they would have to follow the wishes of the Governor of that 
bank. Consequently, the Federal Beserve System was to fall into the 

— 28 — 

hands of two men during the first fifteen years of its existence, Paid 
Warburg of Kuhn, Loeb Co., and Benjamin Strong of J. P. Morgan 
Go. ; both, of these men were at Jekyl Island when the banking legisla- 
tion had been written, and both of them knew how to control it. War- 
burg was on the Board of Governors for four years, and for the ten 
years after that he dominated the Board by his position as President 
of the Federal Advisory Council and as President of the American 
Acceptance Council. Benjamin Strong was Governor of the Federal 
Eeserve Bank of New York from its opening in 1914 until his death 
in 1928, during a Congressional investigation of the System. That is 
how Woodrow "Wilson freed the nation's money and credit from New 
York bankers. The regional reserve system could not be anything but 
a farce. It was designed solely to convince the American people that 
control of our financial resources was. being taken out of Wall Street 
hands, and, once that was done, the Congressmen could vote for the 
Federal Eeserve Act without fear of. reprisal from their constituents. 

A Democratic President and a Democratic Congress had been elect- 
ed in 1912 to get this bid through. Representative Carter Glass of Vir- 
ginia', Chairman of the House Banking and Currency Committee, gets 
credit along with Wilson for finally passing the Act, although ad 
that Wilson did was to sign on the dotted line. Woodrow Wilson was 
regarded generady by the leaders of the Democratic Party as a new- 
comer and a stuffed shirt. Consequently, he enjoyed little power as 
President except for the patronage powers he possessed. He could do 
dttle towards actuady getting Congress to pass the Federal Eeserve 
Act. That job was done by the man who was the Democrat in the 
minds of the American people, William Jennings Bryan. He acted 
as Democratic whip to get the Act passed, and he was rewarded by 
being made the Secretary of State. He later wrote that : 

"In my long political career, the one thing I genuinely regret is 
my part in getting the banking and currency legislation enacted into 
law." * 

To still further confuse the American people and to blind them 
to the real purpose of the Federal Eeserve Act, the chief proponents 
of the Aldrich Plan, Senator Nelson Aldrich and Frank Vanderdp, 
set up an enthusiastic hue and cry against the bid. They gave inter- 
views to reporters and podtieians, anywhere they could find an 
audience, denouncing the Democratic Party's banking legislation as 
inimical to bankers and to good government. The old issue of infla- 
tion was raised because of the Act's provisions for printing Federal 
Eeserve notes. Both Aldrich and Vanderdp spoke against "fiat 
money", that is, enough money being put into circulation to assure 
proper distribution of goods and services among the people. Indeed 
such was their enthusiasm in speaking against the Federal Eeserve 
Act that they reversed themselves on several matters they had already 

— 29 — 

plugged for in the Aldrieh Plan, which, brings to mind my grand- 
father's adage that "Liars should have good memories." 
The Nation, on October 23, 1913, points out that : 
"Mr. Aldrieh himself raised a- hue and cry over the issue of 
government 'fiat money 1 , that is, money issued without gold or bullion 
back of it, although a bill to do precisely that had been passed in 1908 
with his own name as author, and he knew besides, that the 'govern- 
ment' had nothing to do with it, that the Federal Eeserve Board 
would have full charge of the issuing of such moneys." 

The Nation was the only public organ, so far as I can find 
out, which pointed out that the issue of the money of the United 
States was being turned over to a body of men who were neither elect- 
ed nor answerable to electors. Later, under Maurice Wertheim, it no 
longer pointed such criticisms. Aldrieh and Vanderlip, in attacking the 
Federal Reserve Act on these grounds, were throwing up a! smoke 1 
screen to make people think that the big bankers were afraid of the 
Act. Paul Warburg discreetly remained silent during the campaign for 
and against this legislation. He had already arranged, through his 
private emissary to President Wilson, the ubiquitous Colonel House, 
that if the Act were passed, Warburg would be chosen one of the first 

Frank Vanderlip, however, threw himself into the comedy with 
such gusto that Senator Robert L. Owen, chairman of the Senate 
Banking and Currency Committee, openly accused him of carrying on 
a campaign of misrepresentation about the bilk as indeed he was. 
Owen pointed out that Vanderlip, President of the National City 
Bank of New York, was objecting to just those provisions in the Re- 
serve Plan which he had fought for in the Aldrieh Plan. Had Senator 
Owen known that both plans had originated during the secret expedi- 
tion to Jekyl Island, he might have been even more vehement in de- 
nouncing Mr. Vanderlip. The first public reference to the Jekyl Island 
adventure, however, was not to appear for three more years, and no 
one in Washington mentioned it. 

Practically all the newspapers and magazines which had any 
considerable circulation favored the Federal Reserve Act. No economic 
journal dared to compare the Act with the Aldrieh Plan, but such a 
comparison would show that on most matters, including the introduc- 
tion of trade acceptances into this country, there was no appreciable 
difference between the two plans, nor should there have been, since 
they were written by the same people. The editorial comments in 
1913 agreed that if this bill became law, we would enter upon a period 
of general prosperity such as we had never known. The other extrava- 
gant claims for the Federal Reserve Act, its supposed benefits to the 
farmers, its purpose of stabilizing the integer of account (monetary 
unit), its functions of performing banking services for the national 

— 30 — 

Government without charge, and our complete emancipation from 
Wall Street domination, all have been shown to be lies by the events 
of the past thirty-five years. The Federal Eeserve System has done 
none of these things, but the biggest lie was that it would end money 
panics and business depressions. "We were to have no more bank 
failures, no more farms seized by mortgage holders, no more factories 
closing down or unemployment. The Federal Reserve System could 
have done a great deal towards ending these things, but it has exerted 
its influence in the opposite dirction. 

The record of the Federal Reserve System proves that it double- 
crossed the farmers of America at a secret meeting on May 18, 1920, 
when it raised the rate to 7 percent on agricultural paper and pre-> 
cipitated the Agricultural Depression of 1920-21. It proves that the 
Board of Governors met with the heads of the great European cen- 
tral banks to make agreements which brought on the Great Depres- 
sion of 1929-31, after most of our money had been poured into "Wall 
Street because of the easy money policies and credit expansion activi- 
ties of the System. It proves that the central bank mechanism of the 
Federal Reserve System involved us in the First "World "War and the 
Second World War, and that it is making the Third World "War in- 

Chapter Five 

Despite the growing publicity for the Federal Reserve Act and 
the influence of "William Jennings Bryan on the Democratic Congress, 
many Senators and Representatives who were familiar with the bank- 
ing and currency legislation's import were not yet willing to wreck 
the Constitution and double-cross their constituents by voting for 
such a bill. The Senate Banking and Currency Committee was ready 
to write its own version of the Owen-Glass Bill which Representative) 
Carter Glass, Chairman of the House Banking and Currency Com- 
mittee was ready to send them, but Owen's contribution to the bill, 
the stabilization of the monetary unit (integer of account) had already 
been stricken out of the Act. The hearings before the two Committees! 
dragged on for many weeks. Many of the same bankers who had 
come down from New York to tell all before the Pujo Co m mittee now 
appeared before Congress to speak in favor of the Federal Reserve 
Act, a coincidence which the newspapers let pass unnoticed 

Andrew Frame stated before the House Committee that the plan 
still smacked too much of the government monarchies of Europe, and 
that it was not in accord with our institutions. This was as close as. 
anybody came to callng the Act unconstitutional, which it was, since 
it proposed to remove Congress' power of issuing money and credit 
and turn it over to an appointive body. 

— 31 — 

Frank Vanderlip declared before the Senate Committee that he 
now favored the Act, a second reversal of policy in as many months. 
He had come to the conclusion, he said, that the plan would proceed 
along democratic lines, since the President would appoint all Board 
members for ten year terms. 

Senator Weeks inquired of him, "Should the Federal Reserve 
hearings be public, as these hearings are before this Committee?" 

"No," replied Mr. Vanderlip, "they are not exactly hearings, 
they are official meetings." The President of the National City Bank 
evidently felt that democracy was alright, but that it had to stop 
somewhere. Carter Glass agreed with him, when he wrote, in "Ad- 
venture in Constructive Finance" that: 

"The meetings of the Federal Reserve Board are bank board 
meetings, and neither the publie or reporters should be present." 
Neither Vanderlip nor Glass appears to consider the fact that these 
"bank board meetings" would be making decisions which would have 
a more important and more direct impact on the welfare of the 
American people than the decisions of Congress. 

Senator Root also raised the charge of inflation, claiming that 
under the Federal Reserve Act, note circulation would always expand 
indefinitely, causing great inflation. The history of the Federal Re- 
serve System refutes this charge. The System has, if anything, kept 
the note circulation below the amount needed to carry on business 
and commerce in this country, exeept during the two "World "Wars, 
when it did double and triple the circulation. Even after the Great 
Depression of 1929-31, when so much of the circulating medium had 
'been withdrawn that the American people had to print their own 
money on wood and paper, the Federal Reserve System did not in- 
crease the amount of notes in circulation. 

At the House Committee on Banking and Currency Hearings of 
1913, Mr. Paul "Warburg testified as follows : 

"I am a member of the banking firm of Kuhn, Loeb Co. I eame 
over to this country in 1902, having been born and educated in the; 
banking business in Hamburg, Germany, and studied banking in 
London and Paris, and haVe gone all around the world. In the Panic 
of 1907, the first suggestion I made was 'Let us get a- national clear- 
ing house'. The Aldrieh Plan contains some things which are simply 
fundamental rules of banking. Your aim in this plan (Thel Owen- 
Glass Bill) must be the same — centralizing of reserves, mobilizing com- 
mercial credit, and getting an elastic note issue." 

Paul "Warburg was the most clever of the important New York 
bankers. In all his writings and speeches and testimonials before Con- 
gress, he never made a misstatement. For instance, he did not bother 
to mention at this appearance that the banking business he had been 
brought up in in Hamburg, Germany, was his own family banking 

— 32 — 

house of M. M. Warburg Co., a fact which might lave been brought 
up later was nominated for tbe Board of Governors of the 
Federal Reserve System. Warburg's term "mobilization of credit" 
was no accident, for tbe First World War was due to begin in a few 
months, and the first big job of tbe System would be to finance the 
Allies in their war against Germany. 

Leslie Shaw, banker from Philadelphia, dissented with most of tbe 
other witnesses at these hearings when he testified that : 
_ "Under the Aldrieh Plan the bankers are to have local associa- 
tions and district associations, and when you have a local organization, 
the centered control is assured. Suppose we have a local association 
m Indianapolis; can you not name the three men who will dominate 
that association? And then can you not name the one man who will 
dominate the three? The same is true in Richmond and everywhere 
else. When you bave hooked the banks together, they can have the big- 
gest political influence of anything in this country, with the exception 
of tbe newspapers." 

Mr. Shaw did not know that many newspapers were already 
owned by or mortgaged to, big banks, or that Frank Munsey, agent 
for J. P. Morgan Co. sometimes bought newspapers to promote a 
single big stock issue, and sold these periodicals as soon as the stock 
was unloaded. 

The most fiery of the opponents to the Federal Reserve Act was a 
lawyer from Cleveland, Ohio, named Alfred Crozier, who was the 
most outspoken critic of the Wall Street banking fraternity. He bad 
written a book in 1912 entitled "U. S. Monev vs. Corporation Cur- 
rency", which attacked the Aldrieh-Vreeland Act of 1908 as a Wall 
Street instrument and pointed out that when our government had to 
issue money based on privately owned securities, we were no longer a 
free nation. Tbe Federal Reserve System allowed the issue of notes 
on the privately owned shares of tbe Federal Reserve Banks. 
Crozier suggested to the Senate Committee tbat: 
"It should prohibit the granting or calling in of loans for the 
purpose of influencing quotation prices of securities and the contract- 
ing of loans or increasing interest rates in concert by the banks to in- 
fluence public opinion or the action of any legislative body. Within re- 
cent months the Secretary of the Treasury of the United States was 
reported in the open press as charging specifically that there was a 
conspiracy among certain of tbe large banking interests to put a con- 
traction upon the currency and to raise interest rates for the sake of 
making the public force Congress into passing currency legislation 
desired by those interests. The so-called administration currency bill 
grants just what Wall Street and the big banks for twenty-five years 
have been striving for, that is, PRIVATE INSTEAD OF PUBLIC 
CONTROL OF CURRENCY. It does this as completely as the Ald- 

— 33 — 

rich Bill. Both, measures rob the government and the people of all ef- 
fective control over the public's money, and vest in the hanks ex- 
clusively the dangerous power to make money among the people scarce 
or plenty. The Aldrich Bill puts this power in one central bank. The 
A dmini stration Bill puts it in twelve regional central banks, all owned 
exclusively by the identical private interests that would have owned 
and operated the Aldrich Bank. President Garfield shortly before his 
assassination declared that whoever controls the supply of currency 
would control the business and activities of all the people. Thomas 
Jefferson warned us a hundred years ago that a private central bank 
issuing the public currency was a greater menace to the liberties of 
the people than a standing army." 

As the House spokesman for the Democratic Party, representa- 
tive Carter Glass took occasion to make public the sorry record of the 
Republican organization, the National Monetary Commission, in its 
failure to prepare adequate banking and currency legislation. His 
House Report in 1913 said : 

"Senator MacVeagh fixes the cost of the National Monetary 
Commission to May 12, 1 911, at $207,130. They have since spent an- 
other hundred thousand dollars of the taxpayer's money. The work 
done at such cost cannot be ignored, but, having examined the exten- 
sive literature published by the Co mmis sion, the Banking and Cur- 
rency Committee finds little that bears upon the present state of the 
credit market of the United States. ~We object to the Aldrich Bill on 
the following points : 

Its entire lack of adequate government or public control of the 
banking mechanism it sets up. 

Its tendency to throw voting control into the hands of the large 
banks of the system. 

The extreme danger of inflation of currency inherent in the 

The insincerity of the bond-refunding plan provided for by the 
measure, there being a barefaced pretense that this system was to cost 
the government nothing. 

The dangerous monopolistic aspects of the bill. 

Our Committee at the outset of its work was met by a well-defined 
sentiment in favor of a central bank, which was the manifest out- 
growth of the work that had been done by the National Monetary Com- 

Representative Glass' denunciation of the Aldrich Bill as a cen- 
tral bank ignored the fact that his own Federal Reserve System would 
fulfill all the functions of a central bank, that is, its stock would be 
owned by private stockholders who could use the Government's credit 
for their own profit, since they would have the privilege of note issue 
on the Government's credit; it would have control of the nation's 

— 34 — 

money and credit resources, and it 'would finance the Government by 
mobilizing credit in time of war. The Federal Eeserve System was 
acknowledged by economists in. 1913 to be a bank of issue like the 
European central banks. 

Tbe Federal Eeserve Act as Carter Glass presented it was passed 
by the House virtually intact. It then went to the Senate Committee 
on Banking and Currency, where such provisions of the Aldrieh Bill 
as were deemed necessary were restored to it. In the Senate debate 
on the bill, Senator Stone said on December 12, 1913 : 

"The great banks for years sought to have and control agents in 
the Treasury to serve their purposes. Let me quote from this World 
article, 'Just as soon as Mr. McAdoo came to 'Washington, a woman 
whom the National City Bank had installed in the Treasury Depart- 
ment to get advance information on the condition of banks, and other 
matters of interest to the big Wall Street group, was removed. Im- 
mediately the Secretary and the Assistant Secretary, John Skelton 
Williams, were criticized severely by the agents of the Wall Street 
group. ' 

'I myself have known more than one occasion when bankers re- 
fused credit to men who opposed their- political views and purposes. 
When Senator Aldrieh and others were going around the country ex- 
ploiting this scheme, the big banks of New York and Chicago were en- 
gaged in raising a' munificent fund to bolster up the Aldrieh prop- 
aganda. I have been told by bankers of my own state that contribu- 
tions to this exploitation fund had been demanded of them and that 
they had contributed because they were afraid of being blacklisted or 
boycotted. There are bankers of this eountry who are enemies of the 
public welfare. In the past, a few great banks have followed policies 
and projects that have paralyzed the industrial energies of the eountry 
to perpetuate their tremendous power over the financial and business 
industries of America." 

The Federal Eeserve Act, as altered by the Senate, was finally 
passed on December 22, 1913, and went to Woodrow Wilson for his 
signature. Colonel House's connection with Warburg and the Act are 
revealed in the volume "The Intimate Papers of Colonel House." This 
Journal contains the following notes : 

"Dec. 19, 1912. I talked with Paul Warburg over the telephone, 
regarding currency reform. I told of my trip to Washington and 
what I had done there to get it in working order. I told him that the 
Senate and the Congressmen seemed anxious to do what he desired, 
TWELVE — the federal reserve conspiracy — L. Eogers 
and that President-elect Wilson thought straight concerning the is- 

March 13, 1913. Warburg and I had an intimate discussion re- 
garding currency reform 

— 35 — 

March 27, 1913. Mr. J. P. Morgan, Jr. and Mr. Denny of his 
firm came promptly at five. MeAdoo came about ten minutes after- 
ward. Morgan had a currency plan alrea'dy printed. I suggested he 
have it typewritten, so it would not seem too prearranged, and send 
it to Wilson and myself today. 

Oct. 13, 1913. Paul "Warburg was my first caller today. He came 
to discuss the currency measure. There are many features of the 
Owen-Glass Bill that he does not approve. I promised to put him in 
touch with MeAdoo and Senator Owen so that he might discuss it 
with them. 

Nov. 17, 1913. Paul Warburg telephoned about his trip to Wash- 
ington. Later, he and Mr. Jacob Schiff came over for a few minutes. 
Warburg did most of the talking. He had a new suggestion in regard 
to grouping the regular reserve banks so as to get the units welded to- 
gether and in easier touch with the Federal Reserve Board." * 

Warburg's plan to get the units welded together was merely an 
indication of his anxiety to get them under ais tight a control as 
possible. House's papers also reveal that it was he who gave War- 
burg's name to Wilson as candidate for Governor of the first Federal 
Eeserve Board. Wilson approved the ehoice because of Warburg's in- 
terest and experience in currency problems under both Republican 
and Democratic administrations.' 

Woodrow Wilson had been piqued by the consistent opposition 
to the Federal Reserve Act in Congress, and he was haunted by the 
fear that he would not be able to deliver the goods to his employers. 
When the bill finally reached him, on December 23, 1913, he refused 
at first to sign it, because of the provisions for the selection of Class B 
Directors. Bernard Barueh, relates William L. White in his biography 
of that great man, a principal contributor to Wilson's campaign fund, 
hurried over to the White House and told Wilson it did not matter. 
That could be fixed up Jater, the main thing was to get the thing 
signed into law. With this reassurance, Wilson signed the Federal Re- 
serve Act on that December 23, 1913. On that day, the Constitution 
ceased to be the governing covenant of the American people, and our 
liberties were handed over to a' small group of international bankers. 

That same day, Representative Moore of Kansas said, on the floor 
of the House of Representatives : 

•Colonel House was spoken of by Raibbi Wise in his autobiography, "Challenging 
Tears," as the unofficial 'Secretary of State. It -would be more appropriate to .call 
House our unofficial President during the Wilson years, for it was House who was 
representing us at Versailles, and when Wilson came over, the European politicians 
laughed at him for' his self-importance. They knew who pulled his strings. 
House also writes in his memoirs that he and Wilson knew that in passing the 
Federal Eeserve Act they had created an instrument more powerful than the Su- 
preme Court. The Federal Reserve Board of Governors is a Supreme Court of 
Finance, 'and it forced the Supreme Court to its knees in 1935, when the Justices 
were made to approve the criminal conspiracy of Roosevelt, Morgenthau, and the 
international gold dealers to alter the price of gold. If the Justices had disap- 
proved, writes Secretary of the Treasury Morgenthau,' "We were ready to rush 
through an alternate policy." 

— 36 — 

"The President of the United States now becomes the absolute 
dictator of all the finances of the country. He appoints a controlling 
board of seven men, all of whom belong to his political party, even 
though it is a' minority. The Secretary of the Treasury is to rule 
supreme whenever there is a difference of opinion between himself 
and the Federal Reserve Board. AND, only one member of the Board 
is to pass out of office while the President is in office." 

The ten year terms of office of the members of the Board, length- 
ened by the Banking Act of 1935 to FOURTEEN TEARS, meant that 
these dictators of finance, although not elected by the people, held 
office, longer than any eleeted official. Now, they hold office longer 
than three Presidents. 

It remained for Congressman Lindbergh to mate the final state- 
ment, on the swindle which had been perpetrated on the American 
people. Speaking after Representative Moore on that day of December 
23, 1913, he said : 

"This Act establishes the most gigantic trust on earth. "When the 
President signs this bill, the invisible government by the Monetary 
Power will be legalized. The people may not know it immediately, but 
the day of reckoning is only a few years removed. The trusts will soon 
realize that they have gone too far even for their own good. The 
people must make a declaration of independence to relieve themselves 
from the Monetary Power. This they will be able to do by taking con- 
trol of Congress. "Wall Streeters could not cheat us if you Senators and 
Representatives did not make a humbug of Congress. The division of 
Congress into political parties is a crime. The main object of the 
bosses in loth political parties is to get offices and grant special favors 
at the people's expense. This is inherently a National Govern- 
ment, and that is why party government is unsuccessful in dealing 
with economic problems. If we had a people's Congress, there would 
be stability. The greatest crime of Congress is its currency system. 
The worst legislative crime of the ages is perpetrated by this banking 
and currency bill. The caucus and the party bosses have again opera- 
ted and prevented the people from getting the benefits of their own 

Lindbergh was overly optimistic in thinking that the trust dicta- 
torship of the United States would last only' a few years. The American 
people have been kept from rising against oppression at home by being 
sent abroad to fight in two world wars in which we as a people had 
no immediate political or economic stake. Between wars, two great 
depressions have kept our people scrambling for their daily bread. 
They have not had time to object to anything. Lindbergh's theory 
that party government is unsuccessful in dealing with economic pro- 
blems could neither be proved or disproved, because party government 
has not dealt with economic problems since the days of Jefferson and 

— 37 — 

Adams. The -architects and contrivers of the economic inequalities and 
instabilities existing in this country are the leaders and owners of the 
major political parties. They will not move to improve them. 

Chapter Six 

A comparative print of the Federal Eeserve Act of 1913 as passed 
by the House of Representatives and amended by the Senate shows the 
following impressive changes : 

Section 2, Part 2. Provided that the districts shall be apportioned 
with due regard to the convenience and customary course of business 
of the community. (The Senate struck out the phrase 'of the com- 
munity'.) No Federal Reserve bank shall commence business with a 
paid up and unimpaired capital less in amount them five million dol- 
lars. (The Senate struck out 'paid up and unimpaired', and changed 
the required amount to three million dollars.) 

Section 4. Class B directors shall consist of three members who 
shall be representative of the general public interests of the reserve 
districts at the time of their election. The Senate struck out 'shall le 
representative of the general public interests of the reserve districts', 
and added, after the closing word election, 'shall le actively engaged 
in their district in commerce, in agriculture, or in some other in- 
dustrial pursuit'.) At a regularly called meeting of the board of 
directors of each member bank in the reserve district, the board of 
directors of such member ianJc it shall elect by ballot one of its own 
members a district reserve elector and. shall certify his name to the 
chairman of the board of directors of the Federal Bank of the district. 
(The Senate struck out all italicized words.) Concerning the election 
of directors: They shall be fairly representative of the commercial, 
agricultural, or industrial interests of their respective districts. (This 
was struck out altogether by the Senate and replaced with) : "He 
shall be a person of tested banking experience." 

The Senate also increased the proposed salaries of the Governors 
of the Federal Reserve System from ten to twelve thousand dollars a 
year, and struck out, "The Federal Reserve Board shall have the 
power to remove any director of Class B in any Federal Reserve 
Bank if it should appear at any time that such director does not 
fairly represent the commercial, agricultural, or industrial in- 
terests in his district." 

The following provision was among those struck out by the Sen- 
ate: "To suspend the officials of Federal Reserve banks for cause, 
stated in writing with opportunity of hearing, require the removal 
of said' officials for incompetency, dereliction of duty, fraud, or 
deceit, such removal to be subject to approval by the President of 
the United States." 

— 38 — 

The Senate changed this to read as follows : 

"To suspend or remove any officer or director of any Federal 
Reserve bank, the cause of such removal to be forthwith communicated 
m writing by the Federal Reserve Board to the removed officer or 
director and to said bank." This changed entirely the conditions 
under which an official or director might be removed. Under the 
Senate's clause, we do not know what the conditions are for removal, 
or the cause. Apparently incompetency, dereliction of duty, fraud' 
or deceit, do not matter to the Federal Reserve System. Also, the 
removed officer does not, under this change, have the opportunity 
of appeal to the President. This removes any possibility that an in- 
coming President, who might be hostile to the incumbent members of 
the Board, can exercise any control over them. In answer to written 
inquiry, the Assistant Secretary of the Federal Reserve Board replied 
that only one officer has been removed "for cause" in thirty-six 
years, the name and details of the matter being a "private concern" 
between the individual, the Reserve Bank concerned, and the Federal 
Reserve Board. 

The public really has no right to ask questions of the Board of 
Governors, for this unique body, although appointed by the President, 
an elected official, have their salaries paid by 1 the privately owned 
member banks. Thus, there is no reason to expect them to place the 
mterests of the public ahead of the interests of the stockholders of 
the Federal Reserve System, and they haVe in the past thirty-five 
years shown unanswering loyalty to their employers. 

This review of the changes made by the Senate in the Federal 
Reserve Act reveals the uncompromising hostility of that body toward 
any provision of the bill which showed consideration for local re- 
presentation in the control of money and credit. The very first dele-' 
tion, of the phrase "of the community", typifies the attitude of the 
Senate toward the interests of the American people, which was sworn 
to represent those interests. 

In the past twenty years, occasional disagreement has arisen 
between the principals of this drama as to which of them was most 
responsible for riveting this yoke on the necks of the American 
people. Paul Warburg never came out and said that he wrote the bill 
or did. he ever mention Jekyl Island, except in a privately published 
memorandum. However, he did collect his writings in a twenty-five 
hundred page volume on the Federal Reserve System, which proved 
conclusively that it all originated in his banker's brain. 

The late Senator Carter Glass of Virginia, in his book written on 
the subject, "Adventure in Constructive Finance", took credit for 
writing the Act. This caused Samuel Untermyer, one of the real 
authors, to write a letter to his son commenting on this claim, saying 
that Glass must be senile to put such a bald misstatement into print. 
Glass later listed himself in Who's Who" in America merely as the 

— 39 — 

patron and sponsor of the bill for the House of Representatives. H. 
Parker Willis, Paul "Warburg, and Samuel Untermyer were the prin- 
cipal writers of the administration bill which the Democratic Party- 
presented to Congress. All the important provisions of this bill stem 
directly from Paul Warburg's work; at Jekyl Island. When he was 
asked by Carter Barron whether he approved of the bill as it was 
finally passed, Warburg remarked, "Well, it hasn't got quite every- 
thing we want, but the lack can be adjusted later by administrative- 
processes." To make certain that those "administrative processes"' 
would begin as he wished, he had Colonel House appoint "hrm as the 
first Chairman of the Board of Governors of the Federal Reserve 

Woodrow Wilson and Carter Glass are given full credit for the 
Act by contemporary historians, but of all the politicians concerned, 
Wilson had least to do with the fight over the Act in Congress. George 
Creek veteran Washington correspondent, wrote in the Harper's 
Weekly of June 26, 1915, that: 

"As far as the Democratic Party was concerned, Woodrow Wil- 
son was without influence, save for the patronage he possessed. It 
was Bryan who whipped Congress into line on the tariff bill, on the 
Panama Canal tolls repeal, and on the currency bill. Mr. Bryan later 
wrote, 'That is the one thing in my public career that I regret — my 
work to secure the enactment of the Federal Pveserve Law." 

When Wilson signed the Federal Reserve Act on December 23,. 
1913, he fulfilled the pledge he made to the men who had financed his 
campaign. Cleveland H. Dodge of Kuhn, Loeb's National City Bank, 
Jacob Sehiff of Kuhn, Loeb Co., Bernard Ba'rueh, the brilliant young 
speculator and organizer of the tobaeco and rubber trusts, Samuel 
Untermyer, the multi-millionaire corporation lawyer, and. Henry 
Morgenthau, Sr., the Harlem real estate speculator, never made a 
better investment than when they purchased the White House for 
Woodrow Wilson The money and credit resources of the United 
States were now in the complete control of the bankers' alliance 
between J. P. Morgan's First National Bank group and Kuhn, Loeb's 
National City Bank interests, whose principal loyalties were to the 
international banking interests then quartered in London, and which 
moved to New York during the First World War. 

Senator Nelson Aldrich now decided that he had not been really- 
opposed to the Federal Reserve Act after all. In a magazine which, 
he owned, entitled, appropriately enough, the Independent, he wrote : 

"Before the passage of this Act, the New York bankers could, 
only dominate the reserves of New York. Now we are able to dominate- 
the bank reserves of the entire country." 

An interesting observation on the origins and purpose - of the- 
Federal Reserve Act was made by Colonel Ely Garrison, friend and. 
financial adviser to Presidents Theodore Roosevelt and Woodrow* 

— 40 — 

Wilson Ia Ms autobiographical book, "Roosevelt, "Wilson, and the 
.Federal Reserve Law", Garrison wrote: 

"Paul "Warburg is the man who got the Federal Reserve Act 
together after the Aldrich Plan aroused sueh nationwide resentment 
•and opposition. The mastermind of both plans was Baron Alfred 
Rothschild of London." 

Colonel Garrison moved in the inner circles of high, finance, be- 
ing an international agent of Brown Brothers, bankers, of New York. 

The most important revelation of the intent of the Federal Re- 
serve Act of 1913 occurs in a brief observation in the Nation on 
December 25, 1913. 


This item would seem to contradict the claims of the admirers of 
Woodrow Wilson and Carter Glass that the Federal Reserve Act was 
a monetary reform bilL Had there been any possibility that the Act 
would carry out any. monetary reforms whatsoever, that is, that it 
would reduce the. centralization of the nation's money and credit 
in New York, the Stock Exchange might have had as disastrous a 
day as the famous Black Thursday of 1929. The New York Stock 
Exchange is the most accurate barometer of the true meaning of any 
financial legislation passed in Washington Whenever legislation is 
passed which restricts the dictatorship of The New York bankers, 
as on the occasion of the Glass-Steagall Act of 1933, which provided 
that banking houses could not be engaged simultaneously in invest- 
ment banking and deposit banking, the stock market has a bad day. 
Whenever legislation as favorable to the big financiers as the Federal 
Reserve Act is passed, prices of stocks rise rapidly. 

E. W. Kern-merer, famous economist of Princeton, states in his 
"ABC of the Federal Reserve System" that: 

"The federal reserve banks are essentially bankers' banks." This 
would indicate that other claims, for the bilT are false. 

Benjamin Strong, in an introduction to the same volume, says: 

"The managers of the new federal reserve banks soon found that 
the welcome - accorded to them by the banks of the country was, to 
say the least, cool. Both bankers and business men were regrettably 
ignorant of what the Act really meant." The propaganda for the 
Act had been so devious "that, once the bankers had the Act passed, 
they could not get the country to understand how it should work. 

S. E. Harris gives a fair estimate of the Federal Reserve Act in a 
critique published in the Quarterly Journal of Economies' in 1931 : 

"Glass and his colleagues on the House Banking and Currency 
Committee in 1913 provided for a regional system in which control 
occupied a relatively unimportant place, but a measure of control 
was introduced through acceptance by Glass of suggestions in the 

— 41 — 

Aldrieh Plan, and through the influence of Bryan and the Senate. In 
the Federal Reserve Act of 1913 there remained but a small proportion 
of the provisions which had been in the early drafts of the Glass Bill. 
"Warburg during the entire period excercised an important influence 
on the progress of the legislation through his work on the Aldrieh 
Bill, and through his direct contact with the Senate Banking, and 
Currency Committee." 

Further corroboration of Mr. "Warburg's work is given by J. 
Laurence Laughlin in his definitive volume, "The Federal Reserve 
Act, Its Origins and Purposes": 

"Mr. Paul Warburg, of Kuhn, Loeb Co., offered in March 1910 
a fairly well-thought out plan to be known as the United Reserve Bank 
of the United States. This was published in the New York Times of 
March 24, 1910. The group interested in the purposes of the National 
Monetary Commission met secretly at Jekyl Island for about two 
weeks in December, 1910, and concentrated on the preparation of a 
bill to be presented to Congress by the National Monetary Com- 
mission. The men who were present at Jekyl Island were Senator Ald- 
rieh, H. P. Davison of J. P. Morgan Co., Paul Warburg of Kuhn, 
Loeb Co., Frank Vanderlip of the National City Bank, and Charles 
D. Norton of the First National Bank. No doubt the ablest banking 
mind in the group was that of Mr. Warburg, who had a European 
banking training. Senator Aldrieh had no special training in bank- 

The Federal Reserve Act soon disappointed many people who 
had believed in it. W. H. Allen wrote in Moody's Magazine in 1916, 

"The purpose of the Federal Reserve Act was to prevent con- 
centration of money in the New York banks, by making it profitable 
for country bankers to use their funds at home, but the movement 
of currency shows that tbe New York banks gained from the interior 
in every month except December 1915 since the Act went into effect. 
The stabilizing of rates has taken place in New York alone. In other 
parts, high rates continue. The Act, which was to deprive Wall Street 
of its funds for speculation, has really given the bulls and the bears 
such a supply as they have never had before. The truth is, that, far 
from having clogged the channel to "Wall Street, as Mr. Glass so con- 
fidently boasted, it actually has widened the old channels and opened 
up two new ones. The first of these leads directly to Washington and 
gives Wall Street a string on all the surplus cash in the United States 
Treasury. Besides, in the power to issue banknote currency, it 
furnishes an inexhaustible supply of credit money; the second chan- 
nel leads to the great central banks of Europe, whereby, through the 
sale of acceptances, virtually guaranteed by the United States Gov- 
ernment, Wall Street is granted immunity from those foreign demands 
for gold which have precipitated every great crisis in our history." 

— 42 — 

Chapter Seven 

When the Federal Reserve Banks were set up and began opera- 
tions on November 16, 1914, their total assets were listed;, at $143,- 
000,000. On December 23, 1949, testimony before the House Bank- 
ing and Currency Committee showed that the Federal Reserve Banks 
listed assets in excess of forty-five billion dollars ($45,000,000,000), 
or, the equivalent of the entire national budget for any year since 
1945. The men who bonght stock in those Federal Reserve Banks in 
1914 made one of the most fortuitous investments in financial history; 
The percentage of profit is so enormous that it would take an 
economist from Rockefeller's University of Chicago to compute it. 

The men whom President "Woodrow "Wilson chose to make up 
the first Federal Reserve Board of Governors were men representing 
that millionaire class on whom he inclined to fawn. As President of 
Princeton University, "Wilson had developed a fanatical reverence 
for the "captains of industry" and "monarehs of finance" who built 
new buildings and endowed chairs of early Andrassian endocrinology 
for his college. His nomination for the Presidency by the Demoeratie 
Party, which had traditionally represented "the common people" 
against the "vested interests" marked the death of that organization 
as spokesman for the American people. 

According to Wilson himself, he was allowed to choose only one 
man for the Federal Reserve Board. The others were chosen by the 
New York backers. Wilson's choice was Thomas D. Jones of Chicago, 
director of many large corporations, and a trustee of Princeton 
University. The other members were Adolph O.- Miller, economist 
from Rockefeller's University - of Chicago and Morgan's Harvard 
University, also Assistant Secretary of the Interior. Miller was one 
of those independently wealthy men who devoted his life to public 
service, later a neighbor and close friend of the mining promoter 
Herbert Hoover. . 

Charles S. Hamlin, for eight years previously an Assistant Secre- 
tary of the Treasury. 

F. A. Delano, of the Roosevelt family, a railroad engineer who 
took over a number of railroads for Euhn, Loeb Co. which had gone 
into receivership. 

W. P. G. Harding, President of the First National Bank of 

Paul Warburg, of Euhn, Loeb Co. 

Secretary of the Treasury William McAdoo, President of the 
Hudson Manhattan Railroad, a Euhn, Loeb Co. enterprise; 

Comptroller of the Currency John Skelton Williams. 

Both Williams and McAdoo were, to come even more directly 
under the control of Euhn, Loeb Co. during the First World War, 

— 43 — 

•when they were appointed by Wilson as Director and Assistant 
Director of the United States Eailroad Administration in 1917-18. 
Kuhn, Loeb Co. at that time owned or controlled nearly all of the 
large, railroads of the United States. 

Paul Warburg, according to "The Intimate Papers of Colonel 
House", was appointed because "The President accepted the sug- 
gestion (House's suggestion) of Paul Warburg of New York because 
of his interest and experience in currency problems under both Re- 
publican and Democratic Administrations.'' 

The brief history of Kuhn, Loeb Co. is given in this quote from 
Newsweek of February 1, 1936 : 

"Abraham Kuhn and Solomon Loeb were general merchandise 
merchants in Lafayette, Indiana in 1850. As usual in newly settled 
rgeions, most transactions were on credit. They soon found out that 
they were bankers. Gradually forgetting all about merchandise, they 
moved West. In Cincinnati, they got considerable help from the Civil 
War. In 1867, they established Kuhn, Loeb Co., bankers, in New 
York City, and took in a young German immigrant, Jacob Schiff, as 
partner. Young Schiff had important financial connections in Europe. 
After ten years, Jacob Schiff was head of Kuhn, Loeb, Kuhn having 
having died, and Loeb retired. Under Schiff 's guidance, the house 
brought European capital into contact with American industry, which 
was then badly in need of it. The Union Pacific had used up a lot 
of funds, and the railroad failed to earn a return. The Panic of 1893 
added the finishing touch. That failure was a boon to Kuhn, Loeb. 
By financing E. H. Harriman's plans for a new Union Pacific, the 
firm set itself up as the chief financial backer of American railways." 

Jacob Sehiff 's 'important financial connections in Europe' were 
the Rothschild Brothers, and their principal German agents, the 
family Warburg. Paul Emden writes, in "The Money Power of 

"The Warburgs reached their outstanding eminence during the 
last twenty years of the past century, simultaneously with the growth 
of Kuhn, Loeb Co. in New York, with whom they stood in a' personal 
union and family relationship. Paul Warburg with magnifieant suc- 
cess carried through in 1913 the reorganization of the American bank- 
ing system at which he had with Senator Aldrich been working since 
1911, and thus most thoroughly consolidated the currency and 
finances of the United States. " 

By consolidation, Paul Emden meant bringing under control, or, 
to use Warburg's favorite term, "mobilization of credit." Schiff had 
been sent over here to set up new representation in America for the 
Rothschild family. August Belmont had been for some years the only 
American agent for the Rothschilds, and they wanted a new outlet. 
The firm of Kuhn, Loeb was ideal for their purpose, and Schiff 
bought it. It has never been Kuhn, Loeb since, but it has been mostly 

— M — 

Schiff, "Warburg, Hanauer, and • Strauss. SeMff -was given all the 
capital he needed to buy up American railroads for the Rothschild 
family. "With the death of August Belmont, the Belmont firm went 
into a decline, the younger son Perry Belmont, going into polities. He 
later became Chairman of the House Committee on Foreign Affairs. 
His political work did not entirely divorce him from financial in- 
terests, however, and one foreign affair netted him a! commission of 
two million dollars, his payment for negotiating the gold bond deal 
in 1895 with President Grover Cleveland and the Rothschild family. 

Paul "Warburg and his brother Felix came to this country in 
1902 to get a central bank plan passed Paul "Warburg devoted nearly 
all his. time to agitating for his own brand of banking reform, writing 
and lecturing at great length on the obsolete credit structure of "Wall 
Street and publishing several volumes of arguments which proved, 
that we needed a central bank mechanism such as the Reiehsbank, the 
Bank of France, and the Bank of England. He particularly attacked 
the Sub-Treasury System which Andrew Jackson had set up in 183S 
to handle our country's funds after he had crushed the Second Bank 
of the United States in a financial Civil "War. It was "Warburg '& 
contention that the Independent Sub-Treasury System did not get 
money to panic centers in time when there was a money shortage, 
and this was true. During the Panic of 1893, when New York bankers, 
suddenly shipped a hundred million dollars in gold out of this 
country to Canada and England, the ensuing money panic caused 
Congress to repeal the Sherman Silver Act and put the nation back 
on the gold standard This Panic also drove the price of Union Pacific 
stock down from 69 1-2 to 47, enabling Jacob Schiff to secure control 
of the railroad at a great savings for the Rothschild family. "When 
these two goals had been accomplished, the hundred million dollars, 
in gold came back from Canada' and England, and the Panic was- 
over. Our national government was helpless against the international 
gold dealers. "Warburg claimed that a central bank with a reserve- 
system would end such panics. The history of the country since 1913^ 
does not agree with him. 

Despite the fact that Paul "Warburg did not seem to pay attention 
to the business of his firm of Kuhn, Loeb Co., the other partners 
evidently thought enough of him to pay him five hundred thousand 
dollars a year while he was writing and speaking in favor of monetary 
reform. Before the First "World "War, this was an extremely large- 
salary. After "Warburg carried through this banking reform, he was- 
reluctant to let it be set up without taking a still more active part 
in it, and so he resigned his five hundred thousand dollar a year job* 
to take the twelve thousand dollar a year position offered him by 
"Woodrow "Wilson. Despite such a desertion of his partners, they were- 
considerate enough to let him return at his old salary when he sud-* 
denly resigned from the Board of Governors, in May, 1918. Someone* 

— 45 — 

had commented upon the fact that his brother -was. head of the Ger- 
man Secret Service, while his family banking house, M. M. "Warburg 
Company of Hamburg and Amsterdam, was playing its role of chief 
financial agent for the Kaiser. We had been at war for more than a 1 
year before Paul "Warburg thought he should resign. 

"Who's who in American Jewry 1 ' lists Paul Warburg as a part- 
ner or director in the following companies and corporations : 

Western Union, Westinghouse, Wells Fargo, Union Pacific Bail- 
road, Baltimore and Ohio Bailroad, Kuhn, Loeb Co., American I. G. 
Chemical Co. (I. G-. Farben), Agfa Ansco Corp., National Bailways 
of Melxieo, International Acceptance Bank (chairman of the board), 
Westinghouse Acceptance Co., Warburg Co. of Amsterdam, and num- 
erous other banks, railways, and corporations. 

Despite Warburg's tremendous influence, there was open opposi- 
tion in the United States Senate to his appointment as Governor of 
the Federal Reserve System. He was asked to appear before a Senate 
"Subcommittee in June of 1914 and answer some questions about his 
•activities in connection with getting the Act through Congress, but 
he refused to appear. 

The Nation, on July 23, 1914, said: 

"Mr. Warburg finally had a conference with Senator 0' Gorman 
•and agreed to meet the members of the Senate Subcommittee informal- 
ly, with a view to coming to an understanding, and to giving them 
any reasonable information that they might desire. The opinion in 
Washington is that Mr. Warburg's confirmation is assured." " Rea- 
sonable information", of course, would not include any information 
•about Mr. Warburg's connections with Europe. Above all, he knew 
the dangers of appearing and being questioned before a formal com- 
mittee where the hearings might be published later on. He therefore 
refused to appear at any formal meetings, and forced the Sub-com- 
mittee to meet with him informally. The minutes of this meeting were 
not publicized. 

Senator Robert L. Owen charged that Warburg was the American 
representative of the European Rothschilds, but this did not prevent 
the Senate from confirming him. 

The newspapers took very little notice of the disagreements over 
Warburg's appointment. A great hue and cry had been set up over 
Wilson's appointment of Thomas D. Jones of Chicago, apparently 
because Me. Jones was at that time under indictment by the Attorney 
General of the United States. 

The dictatorial nature of Woodrow Wilson always manifested 
itself whenever there was public criticism of his actions, and he was 
.angered by the unfavorable comments on Warburg and Jones. In at- 
tempting to defend his appointment of these men, Wilson made one of 
the most ridiculous statements ever spoken by a President of the 
United States. He told reporters that : 

— 46 — 


Wilson's ignorance of the true history of the men whom he 
admired so much is amazing and inexcusable in a man in charge of 
the nation's welfare. He did not know that J. P. Morgan had swindled 
his own government in time of war, or that Otto Kahn and E. H. 
Harriman had been prosecuted several times for thier illegal activities 
m their war to obtain control of the Union Pacific Railroad for Kuhn, 
Loeb Company. There is ample documentation available to prove the- 
crnninal history of the international bankers who were Wilson 'a 
masters and gods. 

Woodrow Wilson further committed himself as an ignorant pro- 
vincial when, in response to the projected hearings before the Senate- 
Banking and Currency Committee on the fitness of Thomas D. Jones, 
to be a member of the Federal Reserve Board of Governors, he wrote- 
the following letter to Senator Robert L. Owen, chairman of that. 
Committee : 

White House, 
June 18, 1914. 
Dear Senator Owen: 

_Mr. Jones has always stood for the rights of. the people- 
against the rights of privilege. His connection with the Harvester- 
Company was a public service, not a private interest. He is the 
one man of the whole number who was in a peculiar sense my 
personal ehoice. 


Woodrow Wilson 

It is indicative of Woodrow Wilson's character and allegiances, 
that the one man who was in a peculiar sense his personal choice for 
a high Government office should have been a man under indictment 
for his participation in a criminal conspiracy against the people of the* 
United States. He was to continue choosing such men to run this- 
country after he led us into the First World War. 

The sheer idiocy of Wilson's statements in the foregoing letter 
are proved by the Senate Hearings on Thomas D. Jones, a document 
first printed in secrecy which establishes that Jones' "public service"' 
as a director of the International Harvester Company consisted solely 
of voting himself and his partners a twenty million dollar dividend. 
In his fight for "the rights of the people against the rights of- 
privilege", it never occurred to Mr. Jones to make any effort to- 
dissolve the International Harvester Company's criminal combina- 
tion in restraint of trade, even after the Company was indicted by 
the Department of Justice, and thirty-nine years later, it exists as- 
the identical monopoly which the Attorney General attacked in 1913- 

— 47 — 

The following official Government documents give the lie to 
Woodrow "Wilson's recommendation of Thomas D. Jones: 

Executive Eeport No. 1, 63rd Congress, 2nd Session. 


Ordered to be printed in confidence. 

July 21, 1914. Injunction of Secrecy Removed. 

Mr. Hitchcock's Adverse Report on Nomination of Thomas D. 
Jones to be a Member of the Federal Reserve Board, from the House 
Committee on Banking and Currency. Sen. Document 552. 

"The Committee on Banking and Currency herewith reports to 
the Senate on the appointment of Mr. Thomas D. Jones, nominated 
to be a member of the Federal Reserve Board, and recommends that 
the Senate decline to advise and consent to the same. This recom- 
mendation is based on the fa'ct that Mr. Jones is an active director 
in the Harvester Trust and one of the founders and directors of the 
Zinc Trust. The first has been judicially declared to be an unlawful 
conspiracy in several States and is now being prosecuted by the 
United States. The latter has established a practical monopoly in 
oxide of zinc, has raised the price to consumers, and on a total capital 
of ten million dollars is making an unconscionable profit of five mil- 
lion dollars a year. The Harvester Trust was organized in 1902 under 
the name of the International Harvester Company, with a total 
capital of a hundred twenty million dollars. It was formed and financ- 
ed by J, P. Morgan Company, who received four million dollars worth 
of stock; ten million dollars worth of stock was sold for cash to the 
Rockefellers and others through the J. P. Morgan Company." 

Wilson's selling of his sacred trust to the finan cial oligarchy 
is absolutely documented by such reports. The Senate Hearings on 
Nomination of Thomas D. Jones bear out "Wilson's betrayal of the 
American people. 

Senate Hearings on Nomination of Thomas D. Jones. July 6, 

SENATOR SHAFROTH : After the hearing is through, we can 
then determine whether or not it should be made public. 

SENATOR CRAWFORD : Primarily the notes taken here are for 
our use and service, and when we get through with them, they are for 
the use of the Senate. That is where they belong, rather than to the 
public. . 

(This is an instance of our elected representatives carrying out 
their sworn obligations to the people of the United States. The Hear- 
ings were not then made available to the newspapers or to the public.) 

SENATOR REED : Now, Mr. Jones, what did you do, if any- 
thing, toward endeavoring to secure a dissolution of this monolpoly 
dn restraint of trade here in the United States, which the Attorney 
-General was charging and complaining was a monopoly ? 

— 48 — 

MB. JONES: I cannot claim, Senator, that I advanced any pro- 

SENATOR REED : Did yon ever make any motion to the Board 
of Directors to split it up and make it conform to the requirements of 
the Attorney General! 

MR. J ONES : I did not. 

SENATOR REED : Did you ever vote for such a proposition? 
MR. JONES: Such a proposition never came to a vote. 
SENATOR REED : You knew the International Harvester Com- 
pany was a combination in restraint of trade? 
MR. JONES: Yes, sir. 

SENATOR REED: You accorded with the general practices of 
the Company while you were in it? 

MR. JONES: I knew of no practices in the Company after I 
became a director that I thought in any way in contravention of law 
or good morals. 

SENATOR NELSON: What are the profits of the New Jersey 
.Zinc Company, in which you are also a director? 

MR. JONES : They paid dividends of about five million dollars 
last year and four minion dollars the year before. 

SENATOR HITCHCOCK: What was the capital? 

MR. JONES : Ten million dollars. 

SENATOR NELSON: It is a profitable thing? 

MR. JONES: The dividends were not, strictly speaking, profits. 

SENATOR REED : Were you present at the meeting of the Inter- 
national Harvester Company at which the stock dividend of twenty 
million dollars was declared! 

MR. JONES: I was. 

SENATOR REED: Did you favor that or oppose it? 
MR. JONES : I favored it " 

These hearings refute Woodrow Wilson's absurd claims that 
Thomas D. Jones was a public servant. The Senators hesitated to 
recommend Jones for the Board of Governors, and deliberated several 
more weeks. The nation's newspapers shouted Shame at Senator Reed 
for slandering such a fine man as Mr. Jones. 

Woodrow Wilson said: " There is no reason to believe that that 
unfavorable report represents the attitude of the Senate itself." After 
several weeks, Thomas D. Jones withdrew his name, and the country 
had to do without his services. 

Chapter Eight 

When the Federal Reserve Banks were opened for business on 
the 16th of November, 1914, Paul Warburg said: 

"This date may be considered as the Fourth of July in the 
economic history of the United States." . 

— 49 — 

It was certainly the date when everything which the Fourth of 
July had stood for, freedom at home and indpendence from foreign 
influences, was ended. 

The magazines and newspapers of this country hailed the open- 
ing as a genuine monetary reform. From the facts at hand at that 
time, it is difficult to see how even the extraordinarily gullible 
American public swallowed such a lie. The presence of Paul War- 
burg on the Board of Governors was enough to convince anyone that 
Wall Street was in charge, and the further appointment of a Federal 
Advisory Council, a group of bankers to assist the Federal Beserve 
Board in its work, indicated New York influence, for its first mem- 
bers numbered "Winthrop Aldrich and J. P. Morgan, Jr. 

The Federal Reserve Board is the best illustration of the fact 
that this country is governed principally by non-elective officials. 
The career of Henry L. Stimson also bears this out. Law partner of 
Winthrop and Stimson, he was the close associate of Bronson Win- 
throp, director of many corporations owned by Kuhn, Loeb Co. 
Stimson was overwhelmingly defeated when he ran as the Republican 
randidate for Governor of New York in 1910. He never again tried 
ior elective office, but he was subsequently Secretary of War in 
President Taft's cabinet, briefly a Colonel in the First World War, 
until he resigned suddenly on August 8, 1918, the facts of the case 
being sealed in a confidential file, Governor- General of the Philip- 
pines, Secretary of State in Hoover's Cabinet, and Secretary of War 
in President Roosevelt's Cabinet during the Second World War. 

The choosing of the Federal Reserve Districts in 1914 had been 
the occasion of much good-humored provincialism, with every city 
of any consequence demanding to be the site of one of the twelve 
Federal Reserve Banks. After considerable lobbying, the Federal 
Reserve Bank Organization Committee, consisting of the Secretary 
of the Treasury, the Secretary of Agriculture, and the Comptroller 
of the Currency, selected the twelve districts, which were New York, 
Boston, Philadelphia, Cleveland, Chicago, St. Louis, Richmond, 
Atlanta, Dallas, Minneapolis, Kansas City, and San Francisco. The 
great areas of the Western States were left without representation, as 
was Michigan and Wisconsin, the area which had backed LaPollette 
in his fight against the Money Trust. The West was also left without 
representation because of the opposition to the Federal Reserve Act 
by Andrew Frame and a group of Western bankers in the American 
Bankers' Association. 

In Dallas and Kansas City, the influence of the newj Reserve 
Banks was seriously challenged by the powerful Dallas Joint Land 
and Stock Bank and the Kansas City Joint Land and Stock Bank. 
A feud began between the Reserve Banks and these banks, independ- 
ent institutions which represented the financial needs of the farmers 
and cattlemen, which was to end melodramatically in 1928, when 

— 50 — 

United States Marshals, with. drawn guns, were to enter the Joint 
Stock Banks and take them over, obeying the. orders of Assist- 
ant Secretary of the Treasury Dewey and Engene Meyer, Jr. The 
resulting publicity caused the ruin of these banks, and left the Re- 
serve Banks in Dallas and Kansas City at last in complete, control 
of money and credit in their respective districts. These local fights, 
however, were not too important, as Ferdinand Lundberg was to 
point out in "America's Sixty Families", when he noted that: 

"In practice, the Federal Reserve Bank of New York became the 
fountainhead of the system of twelve regional banks, for New York 
was the money market of the nation. The other eleven banks were so 
many expensive mausoleums erected to salve the local pride and quell 
the Jacksonian fears of the hinterland." Lundberg goes on to com- 
ment that: 

"Benjamin Strong, one of the original Jekyl Island group, and 
President of the Bankers Trust Co. of New York (Morgan) was 
selected as the first Governor of the New York Federal Reserve Bank. 
An adept in high finance, Strong for many years manipulated the 
country's monetary system at the discretion of directors representing 
the leading New York banks. Under Strong, the Reserve System was 
brought into interlocking relations with the Bank of England and 
the Bank of France. Benjamin Strong held his position of Governor 
of the Federal Reserve Bank of New York until his sudden death 
in 1928, during a Congressional investigation of the secret meetings 
between Reserve Governors and heads of European central banks 
which brought 'on the Great Depression of 1929-31." 

Paul "Warburg had always agreed with the idea of a' regional 
system, but he saw no reason to waste money setting up twelve banks, 
when four would do just as well. He finally tried to settle for eight, 
but Carter Glass convinced him that they could never geti the Act 
through Congress with fewer banks than twelve, which occasioned 
"Warburg's remark at that time, that the Act did not contain every- 
thing that they wanted, but that could be corrected by administrative 

On October 29, 1915, a committee composed of Paul "Warburg, 
Delano, and Hamlin tried to enact Warburg's first administrative 
process as Governor of the Federal Reserve System. This was an at- 
tempt to disestablish the Dallas and Kansas City branches on account 
of the competition they were receiving in those cities from the Joint 
Land and Stock banks. The Board's general counsel advised "Warburg 
that the Federal Reserve Act did not give the Board of Governors' 
power to abolish or reduce any districts, but Warburg immediately 
hired a special counsel to deliver a favorable opinion (Bulletin 1916, 
pp. 20, 25 ; 1915, p. 396) . Finally, on November 22, 1915, the Attorney 
General of the United States, to whom the question had been submit- 
ted, held that the Board was without power to abolish any of the 

— 51 — 

then existing districts, rendering "Warburg Ms only defeat as dictator 
of the Federal Reserve System, fie had been particularly anxious to 
getthe Dallas and Kansas City Reserve Banks either in control of 
their districts, or else do away -with them, for he was engaged in 
setting up the System to perform the most important function of a 
central bank, mobilizing a nation's money and credit to; finance a 
major war. 

Bernard Barueh stated before the Nye Committee on September 
13, 1937, that: 

"All wars are economic in their origin." 

Mr. Baruch's own economic interests have made him a dominant 
power in this country in both World Wars, in the First, when ha 
put Woodrow Wilson in the White House, and in the Second, when 
he ordered Congress to accept his rationing system, price control 
system, and labor control system in a series of lectures to the Nye 
Committee, which laid down the principles of the Roosevelt dictator^ 
ship from 1940 to 1945. 

The economic aspects of the First World War have been gone 
into at great length and small profit by many writers, who are 
scholastically qualified to deal with that subject, but the quantity 
of special grants and fellowships to such people has elicited little more 
information than Mr. Baruch's statement. Particularly surprising, 
however, is the complete silence concerning the direct responsibility 
of the Federal Reserve System for financing Europe in the First 
World War. 

Before 1914, and the setting up of the Federal Reserve System, 
the United States was a debtor nation, that is, we borrowed a great 
deal of money from abroad, and. we made few international loans; 
mainly because our money and credit was not mobilized into a central 
bank. The New York money market was capable of financing in- 
dustrial enterprises abroad, and had financed one small war, the war 
for Cuba's sugar industry in 1898, but it did not feel capable of 
mortgaging itself to make national loans. The system of national 
loans which was perfected by the Rothschilds during the Napoleonic 
Wars served to finance Continental struggles throughout the nine- 
teenth century, and also financed the South during the American 
Civil War. These national loans were made possible by the inter- 
national financial organization of the Rothschild brothers, which, had 
set up branches in all the major cities of Europe. Thus, the risk of 
any loan could be spread out, and profits also, and an international 
set-up reduced the possibility of governmental interference or control 
in any country. 

By 1900, it had became apparent that the European countries 
eould not afford a major war. They had large standing armies, un- 
iversal military service, and central banks which could finance a war, 
but their economies could not afford it; As early as 1887, the editors 

— 52— 

of the Quarterly Journal of Economies in the April, 1887" issue, ha'd 
pointed out that: 

"A detailed revue of the public debts of Europe shows interest 
and sinking, fund payments of $5,343 million annually (5 and 1/3 
billion). M. Neymarck's conclusion is much like Mr: Atkinson's. The 
finances of Europe are so involved that the governments may ask 
whether war, with all its terrible chances, is not preferable to the 
maintainanee of such a precarious and costly peace. If the military 
preparations of Europe do not end in war, they may well end in the 
bankruptcy of the States. Or, if such follies lead neither to war nor to 
ruin, then they assuredly point to industrial and economic revolution. ' ' 

The First "World War started in 1914. The Federal Reserve 
Banks began operation in 1914. The System forced the American 
people to lend the Allies twenty-five billion dollars which was not 
repaid, except in interest to the New York bankers, and it also com- 
mitted us to make war against the German people, with whom we 
had no conceivable political or economic quarreL The German Am- 
bassador to Turkey, Baron Wangenheim, asked Henry Morgenthau, 
American Ambassador to Turkey, why the United States intended 
to make war upon Germany, since they both knew that there were 
no grounds for such aggression. "We Americans", replied Morgen- 
thau, speaking, presumably, for that group of Harlem real estate 
operators of which he was head, "We Americans are going to war 
for a moral principle." That moral principle had a good amount of 
gold hidden in it. Mr. Morgenthau 's moral principles had come to 
him from the New York slums which he ha drented to poor Negroes 
at high prices. A further study of the moral principles which activat- 
ed the entry of the United States into the First World War reveals 
the Duponts doubling the price of their gunpowder to the government 
after the declaration of war, and J. P. Morgan Go. receiving the 
proceeds of the first Liberty Loan to pay off a $400,000,000 debt 
owed by Great Britain. 

Woodrow Wilson's unofficial messenger and confidante during 
the entire time of his reign was Colonel House, who was sent to him 
with the cordial recommendations of Paul Warburg. Colonel House 
functioned as Wilson's private emissary to Europe for several years, 
keeping up the cordial relations between. Felix and Paul Warburg 
of Kuhn, Loeb Co., New York, and the rest of the family in M. M. 
Warburg Co. of Amsterdam and Hamburg, including the brother 
who was head of the German secret service. 

As we have stated, the United States prior to 1914 was a debtor 
nation. Most large national loans were floated with one or more of 
the important Rothschild affiliates in England, Frances, or Germany, 
the bulk of the loans being handled by the principal Rothschild 
agents in London, J. P. Morgan, Bliss, and Co., and J. P. Morgan, 
Drexel, and Co., which had offiees in New York and London. The 

— 53 — 

functions of these international companies were greatly lessened 
after 1914 when the Federal Keserve System took over the job of 
predetermining the rise or fall of security prices by raising or lower- 
ing the interest rate, and by dumping quantities of Government 
securities on the New York Stock Exchange. The New York Federal 
Eeserve Bank under the guidance or Morgan employee Banjamin 
Strong cooperated closely with the Bank of England, and the Morgan 
houses suffered a great decline after 1914 in international finance. 
International financial relations are much eased by the existence of 
central banks in both countries concerned, and the League of Nations, 
after the war, was to prove its devotion $o the interests which set it 
up, by refusing to make loans to nations which did not have a central 
bank, or which were not on the gold standard The Rothschild-domina- 
ted Bank of England could now deal directly with its chief representa- 
tive" in the United States, Paul Warburg of the Pvothschild-finaneed 
house of Kuhn, Loeb Co. 

In 1915 and 1916, Woodrow "Wilson kept faith with the bankers 
who had purchased the Presidency of the United States for him, by 
refusing to listen to the admonitions of his Secretary of State, 
William Jennings Bryan, against making loans to the Allies through 
the Eothschilds. 

"Money" said Bryan, "is the worst of all contraband," and our 
loans to the Allies during the two and a half years before our entry 
into the First World War were more accurately acts of aggression 
than our belated shipments of troops in 1917, after Wilson's declara- 
tion of war had given an air of legality to the farce. By 1917, the 
Morgans and Kuhn, Loeb Co., had floated a billion and a half dol- 
lars worth of loans to the Allies in bonds sold by the big financiers 
of New York. Those bankers spent hundreds of thousands of dollars 
to get us into the war, using publicity from the Commission for 
Belief in Belgium, which manufactured atrocity stories, and. The 
League to Enforce Peace, a Carnegie organization which agitated for 
War. By sending shipload after shipload of munitions to England 
and France (Cleveland H. Dodge, Wilson's closest friend and backer, 
owned the Symington Arms Co. and the Winchester Arms Co.) 
we provoked Germany into sinking those munitions ships, and one 
such vessel, the Lusitania, was sunk. American lives were lost, but 
the goods on board, ammunition from Cleveland H. Dodge's plants, 
were paid for. This was nothing, however, to the American lives 
which would be thrown away in France or the fortunes which would 
be made from the deaths of our soldiers. 

Walter Hines Page, Ambassador to Britain, had complained that 
he couldn't afford the position, and was forthwith given twenty-five 
thousand dollars a year spending money by Cleveland H. Dodge. Page 
was openly accused by H. L. Mencken of being a British agent in 

— 54— 

1916. On March. 5, 1917, "Walter Hines Page sent a confidential letter 
to Woodrow Wilson. This letter stated that : 

"I think that the pressure of this approaching crisis has gone 
beyond the ability of the Morgan Financial Agency for the British 
and French Governments. The need is becoming too great and nrgent 
for any private agency to meet, for every such agency has to en- 
counter jealousies of rivals and of sections. The greatest help we 
could give the Allies would be a credit. Our Government could make 
a large investment in a Franco-British loan or might guarantee such 
a loan. Unless we go to war with Germany, our Government, of 
course, cannot make such a direct grant of credit. ' ' 

Within the month, Woodrow Wilson asked Congress for a dec- 
laration of war, to save American bankers from a billion and a' half 
dollars loss, and to provide an outlet for armaments. The first Liberty 
Loan of 400 million dollars went to J. P. Morgan Co. for repayment 
of a British Loan, and this was only the beginning of the party. The 
bankers and their managers of heavy industry, transportation, and 
communications, flocked to Washington for a year and a half picnic 
while they spent twenty-five billion dollars of our money. This entire 
sum went to enterprises which they owned. The spectacle of Eugene 
Meyer, Jr., director of the War Finance Corporation, taking ad- 
vantage of his appointment to sell himself million of dollars worth 
of Government securities, is an index to the intrigues of wartime 

The actual inspiration of Page's letter to Wilson was the fact that 
the Rothschilds were becoming alarmed at the rate of Germany's mili- 
tary successes, and were fearing that Germany might win the war 
after all. The financial chaos introduced in Germany by their agents, 
the Warburg family, who were financing the Kaiser's war, and the 
position of Paul Warburg's brother as head of the German Secret 
Service, which enabled him to authorize Lenin's train to go through 
Germany to the Bussian front and make the Bolshevik Revolution 
possible, did not materially affect the German military machine. The 
drastic step of American entry into the war was necessary to save 
the Rothschild's overextended loans and to move the risk of their 
private banking firms in France and England off onto the American 
people. The financial future of the'United States was mortgaged to 
provide security for the Allied loans. 

American heavy industry, • according to Under-Secretary of the 
Navy Franklin D. Roosevelt, had been preparing for war for nearly 
a year. Both the Army and Navy Departments had been purchasing 
heavily of war supplies since early in 1916. Cordell Hull remarks in 
his Memoirs that: 

"The conflict forced the further development of the income-tax 
principle. - Aimin g, as it did, at the one great untaxed source of re- 
venue, the income-tax law had been enacted in the nick of time to 

— 55 — 

meet the demands of war. AM the conflict also assisted the putting 
into effect of "the Federal Reserve System, likewise in the nick of 

The Notes of the Journal of Political Economy, October, 1917, 
state that : 

"The effect of the war upon the business of the Federal Reserve 
Banks has required an immense development of the staffs of these 
hanks, with a corresponding increase in expenses. Without, of course, 
being able to anticipate so early and extensive a demand for their 
services in this connection, the framers of the Federal Reserve Act 
had provided that the Federal Reserve Banks should act. as fiscal 
agents of the Government." 

Both Hull and the editors of the Journal of Political Economy 
regard it as a pleasant surprise that the Federal Reserve System and 
the First "World War, both starting at the same time, should find 
themselves so well adapted for. each other. Hull apparently does not 
understand that the primary function of the central bank mechanism 
is war finance. 

On October 13, 1917, Woodrow Wilson made the following 
speech * 

"It is manifestly imperative that there should be a complete 
mobilization of the banking reserves of the United States. The burden 
and the privilege (of the Allied loans) must be shared by every bank- 
ing institution in the country. I believe that cooperation on the part 
of the b anks is a patriotic duty at this time, and that membership in 
the federal reserve system is a distinct and significant evidence of 

Wilson's speech was occasioned by the fact that the state bank 
and trust companies were not joining the Federal Reserve System 
in the expected numbers. Eemmerer writers that : 

"As fiscal agents of the Government, the federal reserve banks 
rendered the nation services of incalculable value after our entrance 
into the war. They aided greatly in the conservation of our gold re- 
sources, in the regulation of our foreign exchanges, and in the cen- 
tralization and efficient utilization of our financial energies. One 
shudders when he thinks what might have happened if the war had 
found us with our former decentralized and antiquated banking sys- 

Mr. Eemmerer 's shudders are wasted. H we had kept our anti- 
quated banking system", we would never have been able to finance 
the Allies or enter the war ourselves. 

Woodrow Wilson himself did not believe in his crusade to save 
the world for democracy. He later wrote that : 

"The World War was a matter of economic rivalry." 

On being questioned by Senator McCumber about the cir- 
sumstances of our entry into the war, Wilson Was asked, "Do you 

— 56 — 

think if Germany had committed no aet of war or no act of injustice 
against our citizens that we would have gotten into this war?" 
"I do think so,' 3 "Wilson replied 

"You think we would have gotten in anyway?" asked MeOum- 


"I do," said Wilson. 

Whatever his philosophical position about our war with Germany, 
Woodrow Wilson did turn over this country to the worst elements in 
it during the First World War. The American people were put in the 
hands of three dictators, all three being Wall Street gamblers who 
had never held any elective office in the "United States. One was the 
son of an immigrant from Poland, one was the son of an immigrant 
from France, and one was a' German immigrant who had been natural- 
ized in 1911. 

Bernard Baruch, Eugene Meyer, Jr., and Paul Warburg, all 
appointed by their stooge Wilson, exercised more direet power over the 
American people than any President, because back of these meir, 
was the strength of the financial oligarchy which had maintainecl 
undisputed sway in this country since 1863. 

Bernard Baruch first attracted attention oh Wall Street as early 
as 1890, when he was known as a bright young man who worked for 
A. A. Housman & Co., stockbrokers. He was recognized by such stocfc 
speculators as Thomas Fortune Ryan and Henry H. Rogers as an ex- 
ceptionally able organizer of corporations, and in 1896 he organized 
the six principal tabacco companies of the United States into the 
Consolidated Tobacco Co., forcing James Duke of the American) 
Tobacco Co. to enter into the gigantic tobacco trust. The second great 
trust which Baruch organized was the copper trust, set up for the 
Guggenheim family, who have dominated the copper industry of this 
country ever since. Baruch also made his first contact with the firm 
of Kuhn, Loeb Co., when he and Edward H. Harriman, front man 
for Jacob Schiff 's successful campaign to win America's railways for 
the Rothschild family, combined their talents to gain control over the 
public transit systems of New York City. 

Bernard Baruch and his brother Herman formed the firm of 
Baruch Brothers, bankers, in New York in 1901. In 1917. it was dis- 
solved so that Bernard could take over the position of Chairman of 
the War Industries Board. It became Hentz Brothers, bankers, after 

Baruch was reported in a "New Yorker" profile to have made a 
profit of seven hundred and fifty thousand dollars in one day out of 
United States Steel stock, after a phony peace rumor was planted in 
Washington. With the publication of the. peace news,, steel stock drop- 
ped sharply, and Baruch bought up as much as he wanted. He had 
contributed fifty thousand dollars to Woodrow Wilson's campaign in 
1915, and as payment he received control of America's heavy industry. 

— 57 — 

In "Who's Who in American Jewry", Barueh> mentions that ha 
was a member of the Co mmi ssion "which did att purchasing for the 
Allies during the war. This is a characteristic hit of modesty. Bernard 
Baruch was the Commission. He spent the American taxpayers' money 
at the rate of ten billion' dollars a year, and saw to it that the orders 
went to those firms in which he had more than a polite interest. 

Bernard Baruch was also the dominant member of the Munitions 
Price-Firing Committee. This meant that he set the prices at which 
the United States Government purchased war materials from Baruch- 
owned companies. However, it was as Chairman of the "War In- 
dustries Board that Barueh exercised dictatorial powers over 
American manufacturers. At the Nye Committee Hearings in 1935, 
Barueh testified that: 

"President Wilson gave me a letter authorizing me to take over 
any industry or plant. There was Judge Gary, President of United 
States SteeL whom we were having trouble with, and when I showed 
him that letter, he said, 'I guess we will have to fix this Up,' and he 
did fix it up." 

Woodrow Wilson repaid Baruch 's fifty thousand dollars by put- 
ting the entire American Government back of his manipulations. 
However, there were members of Congress to whom he had not given 
fifty thousand dollars, and they demanded to know what his qualifica- 
tions were, that he should be given life or death powers over American 
industry in time of war. He was not a manufacturer, he had scarcely 
ever been in a factory in his life. Called before a Congressional Com- 
mittee, Bernard Baruch said his profession was "speculator". A 
Wall Street gambler was the Czar of American industry, appointed 
to that position by a man who was elected President on the slogan 
"He kept us out of war", and who promptly declared war to protect 
the Rothschilds from further endangering of their credit structure* 

The second of the three emperors of the United States in 1917 
was Eugene Meyer, Jr., son of the dominant partner in the inter- 
national banking house of Paris and New York, Lazard Freres. Meyer 
and Baruch purchased the Alaska- Juneau gold mine together in 1915, 
and were partners in other financial ventures, so that Wilson's choice 
was a happy team. Meyer was appointed Chairman of the War Finance 
Corporation by Woodrow Wilson at the insistence of Baruch and 
William G. McAdoo, Kuhn, Loeb, employee who was Secretary of the 
Treasury. Meyer's family house of Lazard Freres specialized in inter- 
national gold movements, and his ownership of the Alaska- Juneau 
mine and gold properties in South Africa made him. an esteemed 
member of the select circle of international financiers. As Chairman 
of the War Finance Committee, he was in charge of disposing of large 
quantities of Government securities to business firms. Member banks 
of the Federal Reserve System were under the domination of Paul 
Warburg, but Meyer was handling war finance of those financial 

— 58 — 

agencies and banks not under control of the System. Meyer nsed Lis 
position to sell himself, that is, Engene Meyer, Jr., New York, mil- 
lions of dollars worth of United States bonds. 

At the Senate Investigation into Meyer's qualifications to be 
Governor, of the Federal Reserve Board, on January 27, 1931, a' posi- 
tion to which he was appointed by Herbert Hoover, an old friend 
from London, Senator Robert L. Owen, Chairman of the Senate 
Committee on Banking and Currency, established the fact that Meyer 
was a brother-in-law of George Blumentha'l, a member of the firm of 
J. P. Morgan Co., agents of the Rothschilds. Further testimony reveal- 
ed that under Meyer's direction, at least twenty-four million dollars 
worth of Liberty Bonds had been printed in duplicate, and that ten 
billion dollars worth of First "War bonds had been surreptitiously 
destroyed. (House Report 1635, 68th Congress, 2nd Session.) While 
the books were being brought before the Committee, during their in- 
vestigation, they discovered that the books were being taken back 
to the Treasury each night, and that alterations were being made in 
the permanent records. Despite this testimony by a number of Con- 
gressmen, Meyer's appointment to the Federal Reserve Board was 
upheld, and Hoover's judgment vindicated. 

The third member of the Triumvirate which ruled this country 
during the First "War was Paul "Warburg, whom we have already dis- 
cussed at some length. With regards to his military value to the United 
States during time of war, the following United States Naval Secret 
Service Report of December 12, 1918, on Mr. "Warburg is as follows: 

"WARBURG, PAUL, New York City. German, naturalized 
American citizen 1911, was decorated by the Kaiser in 1912, was vice- 
chairman of the Federal Reserve Board, handled large sums furnish- 
ed by Germany for Lenin and Trotsky. Has a brother who is leader 
of the espionage system of Germany." 

Paul Warburg remained financial dictator of the United States 
during the First World War until May, 1918. According to the New 
York Times, his letter of resignation stated that some objection had 
been made "because he had a brother in the Swiss Secret Service. We 
were not at war with Switzerland. He did not dare admit that his bro- 
ther was head of the German Secret Service at the same time he was on 
the Federal Reserve Board. In any case, a man who had been decors*, -ed 
by the Kaiser might be regarded with some suspicion, especially ±.. 
view of the state of hysteria induced by anti-German propaganda' in 
this country's leading newspapers in 1917 and 1918. Since he himself 
had been a German national, until a mere five years before the War, 
he would, under the liberal policies of a Franklin D. Roosevelt, have 
been subject to concentration camp discipline. 

These three appointees of Woodrow Wilson controlled the fi- 
nancial and industrial structure of the United States during the 
First World War, Barueh controlled industry, Meyer controlled all 

— 59 — 

money and credit not in the power of the Federal Keserve System, 
and Warburg was dictator of the nation's formal hanking structure. 
Besides these men, a host of J. P. Morgan Co. and Kuhn, Loeb Co., 
partners, employees, and satellites came to "Washington to administer , 
the fate of the American people. 

The Liberty Loans, which sold bonds to onr citizens, were 
nominally in the jurisdiction of the United States Treasury, under 
the leadership of "Wilson's Secretary of the Treasury, William G< 
McAdoo, whom Kuhn, Loeb Co: had placed in charge of the Hudson- 
Manhattan Kailway Co. in 1902. Paul Warburg, of Kuhn, Loeb Co. 
had most of his firm with him in Washington during the War. Jerome 
Hanauer, partner in Kuhn, Loeb Co., was Assistant Secretary of the 
Treasury in charge of Liberty Loans. The two "Under-Secretaries of 
the. Treasury during the War were S. Parker Gilbert and Koscoe 
C. Leffingwell. Both Gilbert and Leffingwell came to the Treasury 
from the law firm of Cravath and Henderson, and returned to 
that firm when they had fulfilled their mission for Kuhn, Loeb Co. 
in the Treasury. CraTath and Henderson were the lawyers for Kuhn, 
Loeb Co. Gilbert and Leffingwell subsequently received partnerships 
in J. P. Morgan Co. 

One of the most mysterious events of the First World War was 
the^ appointment of the London mining promoter Herbert Hoover as 
United States Food Administrator by Woodrow Wilson. Even before 
Hoover had arrived in this country from his London home, even be- 
fore Congress had heard of him, his secretary in the United States 
Food Administration, Lewis Liehtenstein Strauss, partner of Kuhn, 
Loeb So., and son-in-law of Jerome Hananer of that firm, had already 
set up the Food Administrator's office and was issuing propaganda 
to the newspapers. A bewildered Congress okayed Wilson's appoint- 
ment of Hoover as a matter of course, although it was thought to be- 
somewhat improper for a. man to open up shop before he had ever 
been mentioned for the job. 

Kuhn, Loeb Company, the nation's largest owners of railroad 
properties in this country and in Mexico, protected their interests 
during the First World War by ordering Woodrow Wilson to set up 
a United States Eailroad Administration. The Director-General was 
William McAdoo, and the Assistant Director-General was John Skel- 
ton Williams, Comptroller of the Currency. 'Warburg replaced this 
set up in 1918 with a tighter organization which he called the Federal 
Transportation Council. The purpose of both of these organizations 
was to prevent strikes against Kuhn, Loeb Co. during the war, in ease 
the railroad workers should try to get in wages some of the millions 
of dollars in wartime profits which Kuhn, Loeb received from the 
United State Government. 

Among the important bankers present in Washington during the 
War was Herbert Lehman, of the rapidly rising firm of Lehman Bro- 

— 60 — 

there, tankers New York. Lehman -was promptly put on the General 
Staff of the Army, and presented "with a Colonelcy. 

Other appointments during the First World War were as fol- 
lows : 

J. W. Mcintosh, director of the Armour meat-packing trust, who 
was made Chief of Subsistence for the United States Army in 1918. 
He later became Comptroller of the Currency during Coolidge's Ad-, 
ministration, and ex-officio member of the Federal Reserve Board. 
During the Harding Administration, he did his bit as Director of 
Finance for the United States Shipping -Board, when the Board sold 
ships to the Dollar Lines for a' hundredth of their cost and then let 
the Dollar Line default on its payments. After leaving public ser- 
vice, J. W. Mcintosh became a partner in J. W. WoUman Co., New 
York stockbrokers. 

W. P. G. Harding, Governor of the Federal Reserve Board, was 
also managing director of the War Finance Corporation under 
Eugene Meyer. 

George R. James, member of the Federal Reserve Board in 1923- 
24, was Chief of the Cotton Section of the War Industries Board. 

Henry P. Davison, senior partner in J. P. Morgan Co., was ap- 
pointed head of the American Red Cross in 19 17 in order to get 
control of the three hundred and seventy million dollars cash which 
Was collected from the American people. 

Ronald Ransom, banker from Atlanta, and Governor of the 
Federal Reserve Board under Roosevelt in 1938-39, was the Director 
in Charge of Personnel for Foreign Serviee for the American Red 
Cross in 1918. 

John Skelton Williams, Comptroller of the Currency, was ap- 
pointed National Treasurer of the American Red Cross. 

President Woodrow Wilson, the great liberal who signed the 
Federal Reserve Act and declared war against Germany, had an odd 
career for a man "who is now enshrined as a defender of the common 
people. His chief supporter in both his campaigns for the Presidency 
was. Cleveland H. Dodge of the Kuhn, Loeb controlled National City 
Bank of New York, and President of the Winchester Arms Company 
and the Remington Arms Company. Dodge was very close to President 
Wilson throughout the great democrat's political career. Wilson lifted 
the embargo on shipment of arms to Mexico on February 12, 1914, 
so that Dodge could ship a million dollars worth of arms : and am- 
munition to Garranza and promote the Mexican Revolution. Kuhn, 
Loeb Co., which owned the Mexican National Railways System, had 
' become dissatisfied with the administration of Huerta and had him 
kicked out. 

When the British naval auxiliary Lusitania was sunk in 1915, it 
Was loaded with ammunition from Dodge's factories. Dodge became 
Chairman of the " Survivors of Vietims of the Lusitania Fund", which. 

— 61 — 

did so much to arouse the publie against Germany. Dodge also was 
notorious for using professional gangsters against strikers in Ms 
plants, yet the liberal "Wilson does not appear to have ever been dis- 
turbed by this. 

The key to "Wilson's supposed liberalism, however, is to be found 
in Chaplin's book "Wobbly", which relates how "Wilson scrawled the 
word "REFUSED" across the appeal for clemency sent him by the 
aging and ailing Eugene Debs, who had been sent to Atlanta Prison 
for "speaking and writing against war." The charge on which Debs 
was convicted was "spoken and written denunciation of war." This 
was treason to the Wilson dictatorship, and Debs was imprisoned. As 
head of the Socialist Party, Debs ran for the Presidency from Atlanta 
Prison, the only man ever to do so, and polled more than a million 
votes. It was ironic that Debs' leadership of the Socialist Party, which 
at that time represented the desires of- many Americans for an honest 
government, should fall into the sickly hands of Norman Thomas, a 
former student and admirer of Woodrow Wilson at Princeton Uni- 
versity.- Under Thomas' leadership, the Socialist Party no longer 
stood for anything, and suffered a steady decline in influence and 

The present-day a dmir ers of Woodrow Wilson are led by the 
still omnipotent Bernard Baruch, who states that Woodrow Wilson 
was the greatest man he ever knew. Wilson's appointments to the 
Federal Reserve Board, and that body's responsibility for financing 
the First World War, as well as Wilson's handing over the United 
States to the immigrant Triumvir during the War, mate nrm the 
most important single effector of ruin in American history. 

It is no wonder that after his abortive trip to Europe, where he 
was hissed and jeered in the streets by the French people, and snick- 
ered at in the halls of Versailles by Orlando and Clemenceau, Wood- 
row Wilson returned home to take to his bed,, a' broken invalid. The 
sight of the destruction and death in Europe, for which he was directly 
responsible, was more of a shock than he could bear.' The Italian 
Minister Pantaleoni expressed the feelings of the European peoples 
when he wrote that : 

"Woodrow Wilson, is a type of Pecksniff- who was now disappear- 
ed amid universal execration." 

It is America's misfortune that our subsidized press and educa- 
tional system have been devoted to enshrining a man who- colluded 
in causing so much death and sorrow throughout the world. 

Chapter Nine 


When Paul Warburg resigned from the Federal Reserve Board 
of Governors in 1918, his place was taken by Albert Strauss, partner 
in the international banking house of J. & W. Seligman. This bank- 

— 62 — 

ing house had large interests in Cuba and South America, and played 
a prominent part in financing the many revolutions in those 
countries. Its most notorious publicity came during the Senate 
Finance Committee's investigation of that firm in 1933, when it was 
brought out that J. & W. Seligman had given a $415,000 bribe_ to 
Juan Leguia, son of the President of Peru, in order to get that nation 
to accept a loan. 

A partial list of Albert Strauss' directorships, a'ccording to 
"Who's "Who in American Jewry", shows that he is: 

Chairman of the Board of the Cuba Cane Sugar Corporation; 
Director, Brooklyn Manhattan Transit Co., Coney Island Brooklyn 
RE, New York Rapid Transit, Pierce-Arrow, Cuba' Tobacco Corpora- 
tion, and the Eastern Cuba Sugar Corporation 

Governor Delano resigned in August, 1918, to be commissioned 
a Colonel in the Army. The war ended on November 11, 1918. 

William MeAdoo was replaced in 1918 by Carter Glass as 
Secretary of the Treasury. Both Strauss and Glass were present dur- 
ing the secret meeting of the Federal Reserve Board on May 18, 
1920, when the Agricultural Depression of 1920-21 was made possible. 

One of the main lies about the Federal Reserve Act when it was 
being ballyhooed in 1931 was its promise to take care of the farmer. 
Actually, it has never taken care of anybody but a few big bankers. 
Prof. O. M. W. Sprague, Harvard economist, writing in the Quarter- 
ly Journal of Economics of February, 1914, said: 

"The primary purpose of the Federal Reserve Act is to make 
sure that there will always be an available supply of money and credit 
in this country to meet unusual 'banking requirements." There is 
nothing there to help the farmer. 

The First World War had introduced into this country a general 
prosperity, as revealed by the stocks of heavy industry on the New 
York Exchange in 1917-18, by the increase in the amount of money 
circulated, and by the enormous bank clearings during the whole of 
1918. It was the assigned duty of the Federal Reserve System to get 
back the vast amount of money and credit which had escaped their 
control during this time of prosperity. This was done by the Agricul- 
tural Depression of 1920-21. 

The open market operations of the Federal Reserve Open Mar- 
ket Committee in 1917-18, while Paul Warburg was still Chairman, 
show a tremendous increase in purchases of bankers' and tra'de ac- 
ceptances. There was also a great increase in the purchase of Dnited 
States Government securities, under the leadership of the able Eugene 
Meyer, Jr. A large part of the stock market speculation in 1919, at 
the end of the War when the market was very unsettled, was financed 
with funds borrowed from Federal Reserve Banks with Government 
securities as collateral. Thus the Federal Reserve System set up the 

— 63 — 

Depression, first by causing inflation, and then raising the discount 
rate and making money dear. 

In 1914, Federal Reserve Bank rates had dropped from 6% to 
4%, had gone to a further low of 3 percent in 1916, and had stayed 
at that level until 1920. The reason for the low interest rate was the 
necessity for floating the billion dollar Liberty Loans. At the begin- 
ning of each Liberty Loan Drive, the Federal Reserve Board put a 
hundred million dollars into the New York money market through its 
open market operations, in order to provide a cash impetus for the 
drive. The most important role of the Liberty Bonds was to. soak up 
the increase in circulation of the medium of exchange (integer of 
account) brought about by the large amount of currency and credit 
put out during the war. Laborers were paid high wages, and farmers 
received the highest prices for their produce they had ever known. 
These two groups accumulated millions of dollars in cash which they 
did not put into Liberty Bonds. That money was effectively out of 
the hands of the "Wall Street group which controlled the money and 
credit of the United States. They wanted it back, and that is why we 
had the Agricultural Depression of 1920-21. 

Much of the money was deposited in the small country banks 
in the Middle "West and "West which had refused to have any part of 
the Federal Reserve System, the farmers and ranchers of those regions 
seeing no good reason why they should give a group of international 
financiers control of their money. The main job of the Federal Re- 
serve System was to break these small country banks and get back the 
money which had been paid out to the farmers during the war, in 
effect, ruin them, and this it proceeded to do. 

First of all a "federal Farm Loaii Board was set up which en- 
couraged the farmers to invest their accrued money in land on long 
term loans, which the farmers Were eager to do. Then inflation was 
allowed to take its course in this country and in Europe in 1919 and 
1920. The purpose of the inflation in Europe was to cancel out a large 
portion of the war debts owed by the Allies to the American people, 
and its purpose in this country was to draw in the excess moneys 
which had been distributed to the working people in the form of 
higher wages and bonuses for production. As prices went higher and 
higher; the money which the workers had accumulated became worth 
less and less, thus inflicting upon them an unfair tax, . while the 
propertied classes were enriched by the inflation because of the enor- 
mous increase in the value of land and manufactured goods. The 
Workers were thus effectively impoverished, but the farmers, who 
were as a class more thrifty, and who were more self-sufficient, had 
to be handled more harshly. 

G-. ~W. Norris, in Collier's Magazine of March 20, 1920, said: 

"Rumor has it that two members of the Federal Reserve Board 
had a plain talk with some New York bankers and financiers in 

— 64 — 

December, 1919. Immediately afterwards, there was a notable decline 
in transactions on the stock market and a cessation of company pro- 
motions. It is understood that action in the same general direction 
has already been taken in other sections of the country, as evidence 
of the abuse of the Federal Reserve System to promote speculation 
in land and commodities appeared." 

Senator Robert L. Owen, Chairman of the Senate Banking and 
Currency Committee, testified at the Senate Silver Hearings in 1939 

"In the early part of 1920, the farmers were exceedingly prosper- 
ous. They were paying off their mortgages and buying a lot of new 
land, at the instance of the Government — had borrowed money to do 
it — and then they were bankrupted by a sudden contraction of credit 
and currency which took place in 1920. "What took place in 1920 was 
just the reverse of what should have been taking place. Instead of 
liquidating the excess of credits created by the war through a period 
of years, the Federal Reserve Board met in a meeting which was not 
disclosed to the public. They met on the 18th of May, 1920, and it was 
a secret meeting. They spent all day conferring; the minutes made 
sixty printed pages, and they appear in Senate Document 310 of 
February 19, 1923. The Class A Directors, the Federal Reserve Ad- 
visory Council, were present, but the Class B Directors, who represent- 
ed business, commerce, and agriculture, were not present. The Class 
C Directors, .representing the people of the United States, were not 
present and were not invited to be present. Only the big bankers were 
there, and their work of that day resulted in a contraction of credit 
which had the effect the next year of reducing the national income 
fifteen billion dollars, throwing millions of people out of employment, 
and reducing the value of lands and ranches by twenty billion dol- 

Carter Glass, member of the Board in 1920 as Secretary of the 
Treasury, wrote in his autobiography, "Adventure in Constructive 
Finance", published in 1928, in response to criticism of his part in 
causing the Agricultural Depression by raising the discount rate to 
7% on agricultural and livestock paper, said: 

"Reporters were not present, of course, as they should not have 
been and as they never are at any bank board meeting in the world." 

It was Carter Glass who had complained that, if a suggested 
amendment by Senator LaFollette were passed, on the Federal Re- 
serve Act of 1913, to the effect that no member, of the Federal Re- 
serve Board should be an official or director or stockholder of any 
bank, trust company, or insurance company, we would end up by 
having mechanics and farm laborers on the Board. Certainly mechanics 
and farm laborers could have caused no more damage to the country 
than did Glass, Strauss, and "Warburg at the secret meeting of the 
Federal Reserve Board. 

— 65 — 

Senator Brookhart of Iowa testified that at that secret meeting 
of the Federal Reserve Board, Paid Warburg, then President of the 
Federal Advisory Board, which ma'de the decisions for the Board, 
had a resolution passed to send a committee of five to the Interstate 
Commerce Commission and ask for an increase in railroad rates. As 
head of Ruhn, Loeb Co. which owned most of the railway mileage 
in the United States, he was already missing the huge profits which 
the United States Government had paid him during the war, and he 
wanted to inflict new price raises on the American people. 

Senator Brookhart also testified that : 

'I went into Myron T. Herrick's office in Paris, and told him 
that I came there to study cooperative banking. He said to me, 'As 
you go over the countries of Europe, you will find that the United 
States is the only civilized country in the world that by law is pro- 
hibiting its people from organizing a cooperative system. 1 I went 
up to New York and talked to about two hundred people. After talking 
cooperation and standing around waiting for my train — I did not 
specifically mention cooperative banking, it was cooperation in gen- 
eral- — a man called me off to one side and said, 'I think Paul "War- 
burg is the greatest financier we have ever produced. He believes 
a lot more of your cooperative ideas than you think he does, and if 
you want to consult anybody about the business of cooperation, he 
is The-. man to consult, because he believes in you, and -you can rely 
on him.' A few minutes later I was steered up against Mr. Warburg 
himself, and he said to me, 'You are absolutely right about this co- 
operative idea. I want to let you know that the big bankers are with 
you. I want to let you know that now, so that you will not start 
anything on cooperative banking and turn them against you.' I said, 
'Mr. Warburg, I have already prepared and tomorrow I am going 
to offer an amendment to the Lant Bill authorizing the establishment 
of cooperative national banks. ' That was the intermediate credit act 
which was then pending to authorize the establishment of cooperative 
national banks. That was the extent of my conversation with Mr. 
Warburg, and we have not had any since. ' ' 

Mr. Wingo testified that in April, May, June, and July of .1920, 
the manufacturers and merchants were allowed a' very large increase 
in credits. This was to tide them through the contraction of credit 
which was intended to ruin the American farmers, who, during this 
period, were denied all credit. 

At the Senate Hearings in 1923, Eugene Meyer, Jr. put his finger 
on a primary reason for the Federal Reserve Board's action in rais- 
ing the interest rate to 7 % on agricultural and livestock paper : 

"I believe," he said, "that a great deal 'of trouble would have 
been avoided if a larger number of the eligible non-member banks 
had been members of the Federal Reserve System." Meyer was cor- 
rect in pointing this out. The purpose of the Board's action was to 

— 66 — 

break those state and joint land-stock banks which had steadfastly re- 
fused to surrender their freedom to the banker's dictatorship set up by 
the System. Eemmerer in the "A B C of the Federal Reserve System" 
had written in 1919, that: 

"The tendency will be toward unification and simplicity which 
will be brought about by the state institutions, in increasing numbers, 
becoming stockholders and depositors in the reserve banks." how- 
ever, the state banks had not responded. 

The Senate Hearings of 1923 into the causes of the Agricultural 
Depression of 1920-21 had been demanded by the American people. 
The complete record of the seeret me'eting of the Federal Eeserve 
Board on May 18, 1920 had been printed in the "Manufacturers' 
Record" of Baltimore, Maryland, a magazine devoted to the interests 
of small Southern manufacturers. 

Frank Vanderlip testified at these Hearings that not only had 
state banks failed to join in anticipated numbers after the passage of 
the Federal Reserve Act in 1913, but that during the war many of 
them dropped out. Thus, the Board's action continued that war 
against the rural banks which had been occasioned by the initial op- 
position of those banks to the "Wall Street plan which Paul "Warburg 
wrote for the House and which was signed by "Woodrow "Wilson. An- 
drew Frame had aroused the hatred of the New York bankers when he 
fought the Reserve Plan, and this hatred had first manifested itself 
in the distribution of the Reserve Banks so that the "West was left 
without representation, and continued with the rate policy of the 
Board in 1920. The violent contraction of credit on May 18, 1920 
ruined many western bankers. 

Benjamin Marsh, Director of the Farmers' Council, testified 

"Anything which turns over to private banks the issuance of 
credit is unconstitutional. 

SENATOR GLASS: You think cooperative associations ought 
to be allowed to issue credit? 

MARSH : Let them issue credit to their own members. 

SENATOR GLASS: Do you think that the cooperative associa- 
tions ought to be allowed to issue currency 1 

MARSH: No, let the Government issue currency, but not upon 
that fictitious and fluctuating value known as the gold standard. 

SENATOR GLASS : Do you believe that the Federal Farm Loan 
Act has resulted in an orgy of land speculation 1 

MARSH: It is encouraging it. The financial interest tried to 
crush labor by the open-shop drive, and by breaking down immigration 
restrictions. Then they said, '"We have got 'to freeze millions of farmers 
off of their farms; let them go into industry and they Will smash, 
labor's standard.' Secretary of Agriculture "Wallace (father of Henry 
Agard) has stated with great frankness that driving farmers off of 

— 67 — 

the farms mil result in restoring the parity between the prices which 
farmers get for their products, and the wages of labor." 

Benjamin Strong, Governor of the Federal Reserve Bank of 
New York, and close friend of Montagu Norman, Governor of the 
Bank of England, said at these Hearings : 

"The Federal Reserve System has done more for the farmer than 
he ias yet begun to realize. ' ' 

Emmanuel Goldenweiser, Director of Research for the Board of 
Governors, claimed that the discount rate was raised purely as an 
anti-inflationary measure, but he failed to explain why it was a raise 
aimed solely at farmers and workers, and at the same time the System 
protected the manufacturers and merchants by assuring them in- 
creased credits. 

The final statement on the Federal Reserve Board's causing the 
Agricultural Depression of 1920-21 was made by William Jennings 
Bryan. In Hearst's Magazine of November 1923, he wrote : 

"The Federal Reserve Bank that should have been the farmer's 
greatest protection has become his greatest foe. The deflation of the 
farmer was a crime deliberately committed." 

Chapter Ten 

After the Agricultural Depression of 1920-21, the Federal Re- 
serve Beard of Governors settled down to a steady eight years of pro- 
viding credit expansion for the New York bankers, a policy which 
culminated in the Great Depression of 1929-31 and paralyzed the 
economic structure of the world. Paul "Warburg had resigned in May, 
1918, after the monetary system of the United States had been changed 
from a bond-secured currency to a currency based upon com- 
mercial paper and the shares of the Federal Reserve Banks. Warburg 
returned to his five hundred thousand dollar a year job with Kuan, 
Loeb .Co., but he continued to determine the policy of the Federal Re- 
serve System, as President of the Federal Advisory Council and as 
Chairman of the Executive Committee of the American Acceptance 

From 1921 to. 1929, Paul Warburg organized three of the greatest 
trusts in the United States, the International Acceptance Bank, 
largest acceptance bank in the world, Agfa' Ansco Film Corporation, 
with headquarters in Belgium, and I. G. Farben Corporation, whose 
American branch Warburg set up as American I. G. Chemical Cor- 
poration. A co-director in these enterprises was Bronson Winthrop, 
law partner of Henry L. Stimson, while Stimson continued to devote 
his life to public service. 

In the early 1920s, the Federal Reserve System played the de- 
cisive role in the re-entry of Russia into the international finance 

— 68 — 

structure. Winthrop and Stimson continuea to be the correspondents 
between Russian and American bankers, • and Henry' L. Stimson 
bandied tbe negotiations concluding in our recognition of tbe Soviet 
after Roosevelt's election in 1932. This was an anti-climax, because 
we bad long before resumed exchange relations with. Russian fi- 

The Federal Reserve System began purchasing Russian gold in 
1920 ; and Russian currency was accepted on the Exchanges. Ac- 
cording to Colonel Ely Garrison, in his autobiography, and according 
to the United States Naval Secret Service Report on Paul "Warburg, 
the Russian Revolution had been financed by the Rothschilds and 
Warburgs, with a member of the Warburg family carrying the actual 
funds used by Lenin and Trotsky in Stockholm in 1918. This would 
theoretically place Russia outside the pale of international finance. 

An article in the English monthly, "Fortnightly", July, 1922, 

"During the past year, practically every single capitalistic in- 
stitution "has been restored. This is true of the State Bank, private 
banking, the Stock Exchange, the right to possess money to unlimited 
amount, the right of inheritance, the bill of exchange system, and 
other institutions and practices involved in the conduct of private 
industry and trade. A great part of the former nationalized industries 
are now found in semi-independent trusts." 

The organization of powerful trusts in Russia under the guise of 
Communism made possible the sending of large amounts of financial 
and technical help from the United States. The Russian aristocracy 
had been wiped out because it was too inefficient to manage a modern 
industrial state. The international financiers provided funds for Lenin 
and Trotsky to overthrow the Czarist regime and keep Russia in the 
First" "World War. Peter Drueker, spokesman- for the oligarchy in 
Ameriea, declared in an article in the Saturday Evening Post in 
1948, that: 


In Russia, the issuance of sufficient currency to handle the 
needs of their economy occurred only after a government had been 
put in power which had absolute control of the people. During the 
1920s, Russia issued large quantities of so-called "inflation money", 
a managed currency. The same Fortnightly article (of July 1922) 
-observed that : 

"As economic pressure produced the "astronomical-dimensions 
system" of currency; it can never' destroy it. Taken alone, the system 
is self-contained, logically perfected, even intelligent. And it can 
perish only through collapse or destruction of the political edifice 
which it decorates." 

Fortnightly also remarked, in 1929, that: 

— 69 — 

"Since 1921 ,the daily life of th,e Soviet citizen is no different 
from that of the American citizen, and the Soviet system of govern- 
ment is more economical." 

Admiral Kolehak. leader of the White Russian armies, was for 
awhile supported by the international bankers, who sent British and 
American troops to Siberia in order to have a pretext for printing' 
Kolehak rubles. At one time in 1920, the bankers were manipulating 
on the London Exchange the old Gzarist rubles, Kerensky rubles and 
Kolehak rbules, the values of all three fluctuating according to the 
movements of the Allied troops aiding Kolehak. Kolehak also was 
in possession of considerable amounts of gold which had been seized 
by his armies. After his defeat, a trainload of this gold disappeared 
in Siberia. At the Senate Hearings in 1921 on the Federal Reserve 
System, it was brought out that the System had been receiving this 
gold. Congressman Dunbar questioned Governor W. P. G. Harding of 
the Federal Reserve Board as follows : 

DUNBAR: "In other words, Russia is sending a great deal of 
gold to the European countries, which in turn send it to us? 

HARDING: This is done to pay for the stuff bought in this 
country and to create dollar exchange. 

DUNBAR: At the same time, that gold came from Russia 
through Europe? 

HARDING: Some of it is thought to be Kolehak gold, coming 
through Siberia, but it is none of the Federal Reserve Banks' business. 
The Secretary of the Treasury has issued instructions to the assay 
office not to take any gold which does not bear the mint mark of a 
friendly nation. ' ' 

Just what Governor Harding meant by " a friendly nation" is 
not clear. In 1921, we were not, militarily, at least, at war with any 
country. At any rate, Congress was already beginning to question the 
international gold dealings of the Federal Reserve System. Governor 
Harding could very well shrug his shoulders and say that it was 
none of the Federal Reserve Banks' business where the gold came 
from. Gold knows no nationality or race. The United States by law 
had ceased to be interested in where its gold came from in 1906, 
when Secretary of the Treasury Shaw made arrangements with sev- 
eral of the larger New York banks (ones in which he had interests) 
to purchase gold with advances of cash from the United States Trea- 
sury, which would then purchase the gold from these banks. The 
Treasury could then claim that it did not know where its gold came 
from, since their office only registers the bank from which it made 
the purchase. Since 1906, the Trea'sury has not known which of the 
international gold merchants it was buying its gold from. 

The First "World War changed the status of the United States 
from that of a debtor nation to the position of the world's greatest 
creditor nation, a title formerly occupied by England. Since debt 

— 70 — 

is money, according to Governor Marriner Eecles of the Federal Re- 
serve Board, this also made us the richest nation of the world. The 
war also caused the removal of the headquarters of the world's ac- 
ceptance market from London to New York, and Paul Warburg be- 
came the most powerful trade acceptance banker in the world. The 
mainstay of the international financiers, however, remained the same. 
The gold standard was still the basis of foreign exchange, and the 
small group of internationals who owned the gold controlled the mone- 
tary systems of the Western nations. 

The chief weapon of the gold standard bankers during the 1920s 
and the 1930s was the League of Nations. Through this institution, 
most of the democracies were forced to go back on the gold standard 
between 1924 and 1928. These countries needed money for reconstruc- 
tion af ter the First World War, and the League of Nations was will- 
ing to oblige. The only conditions were that the applicant nation have 
a central bank and be on the gold standard. Loans were not granted 
where these conditions did not exist. Consequently, central banks 
were set up in many countries where they had not been known before, 
particularly in the South American nations. Paul Einzig, in the Lon- 
don Economist, writes that : 

"The League of Nations and cooperation between central banks 
put Europe back on the gold standard. Although in most cases, it was 
the League Finance Committee that created the international loans, 
its work was largely inspired by the Bank of England. Post-war in- 
ternational cooperation also assumed the form of extremely close 
contact between central banks. There was regular international ex- 
change of information, and important decisions, such as bank-rate 
changes, were usually communicated in advance to other leading cen- 
tral banks. The internationalization of finance since the war was also 
largely responsible for governments and central banks accumulating 
huge floating balances. " 

During the 1920s, the Federal Reserve System functioned as a 
central bank mechanism which provided the facilities for domestic 
credit expansion and for foreign loans. Much of the increased potential 
of American heavy industry had been used up in the First World 
War. With the coming of peace, however, our economy faced the twin 
problems of overproduction and distribution. The insufficient 
qauntity of-icrteger of account (monetary unit) in the United States 
prevented its citizens from receiving the benefits of the increased pro- 
duction, and on many items the manufacturers Were faced with the 
problems of market satiation. American bankers during this period 
found it more profitable to finance foreign markets than to finance 
consumption at home. 

At the House Hearings on Senate Bill 2472 on September 19, 
1919, Edmund Piatt, Chairman of the House Banking and Currency 
Committee, said: 

— 71 — 

"Some time ago a young man came np to me who said he had 
been to Bulgaria, I believe it was, and sold a million dollars "worth of 
beds. He wanted the United States Government to send the money over 
to Bulgaria to pay for those beds." 

Senator "Walter Edge, remarked: 

"That is exactly the story you are going to be getting from the 
manufacturers of this country very soon." The manufacturers sold 
goods abroad during the 1920s, and the Federal Reserve System co- 
operated by helping to float billions of dollars of foreign loans in this 
country during the 1920s. Franklin D. Roosevelt played an important 
part in many of these transactions, as President of some of the loan 
companies, and as lawyer for them in his firm of Roosevelt and O'Con- 
nor. The Federal Reserve System by its discount rate and open mar- 
ket operations created easy money conditions and cheap money rates 
in the United States so that the American people would buy those 
bonds. The bonds subsequently defaulted and our citizens lost three 
dollars out of four which they had invested in them. 
Professor Gustav Gassel wrote in 1928 : 
"The American dollar, not the gold standard, is the world's mone- 
tary standard. The American Federal Reserve Board has the power 
to determine the purchasing power of the dollar by making changes in 
the rate of discount, and thus controls the monetary standard of the 

If this were true, the members of the Federal Reserve Board 
would be the most powerful financiers in the world. Occasionally their 
membership includes such influential men as Paul "Warburg or Eugene 
Meyer, Jr., but usually they are a rubber-stamp committee for the 
Federal Advisory Board and the Wall Street bankers. There has 
been a great deal of secrecy surrounding the activities of the Federal 
Reserve System, and its employees are investigated thoroughly before 
being hired. The System has high standards as regards "loyalty" and 

The matter of changing the discount rate, for instance, has never 
been satisfactorily explained. Inquiry at the Federal Reserve Board 
in Washington elicited the reply that "the condition of the money 
market is the prime consideration behind changes in the rate." Since 
-the money market is in New York, it needs no wild imagination to 
deduce that New York bankers are interested in changes of the 
rate and attempt to influence it. 

Norman Lombard, in the periodical "World's Work", writes 

"In their consideration and disposal of proposed changes ©f 
policy, the Federal Reserve Board should follow the procedure and 
ethics observed by our court of law. Suggestions that there should 
be a change of rate or that the Reserve Banks should buy or sell 
securities may eome from anyone and with no formality or written 

— 72 — 

argument. The suggestion may be made to a Governor or Director 
of the Federal Reserve System over the telephone or at his elub over 
the luncheon table, or it may be made in the j course of a casual call 
on a member of the Federal Reserve Board. The interests of the one 
proposing the change need not be revealed, and his name and any 
suggestions he makes are usually kept secret. If it concerns the matter 
of open market operations, the public has no inkling of the decision 
until the regular weekly statement appears, showing changes in the 
holdings of the Federal Reserve Banks. Meanwhile, there is no public 
discussion, there is no statement of the reasons, for the decision, or of 
the names of "those opposing or favoring it.'' 

The chances of the average citizen meeting a Governor of the 
Federal Reserve System at his club are slight. 

The House Hearings on Stabilization of the Purchasing Power of 
the Dollar in 1928 proved cpnelusively that the Federal Reserve Board 
worked in close cooperation with the heads of European central banks, 
and that the Depression of 1929-31 was planned at a secret luncheon 
of the Federal Reserve Board and those heads of European central 
banks in 1927. The Bpard has never been responsible to the public 
for its decisions or actions. 

The true allegiance of the members of the Federal Reserve Board 
has always been to the big bankers, and this has merely been carrying 
out their central bank duties. The three features of the central bank, 
its ownership by private stockholders who receive rent and profit for 
their use of the nation's credit, absolute control of the nation's 
financial resources, and mobilization of the nation's credit to finance 
foreigners, all were demonstrated by the Federal Reserve System 
during the first fifteen years of its operations. 

R. H. Brand, Chairman of. the Proceedings of the Chatham House 
S.tudy Group on Gold, in England in 1930, stated that : 

"The first and fundamental duty of every central bank is to 
maintain its currency at a par with gold. The second duty of a central 
bank should be to work the gold .standard so as to harmonize as far 
as possible external with internal requirements. The third duty, of 
course, is that each central bank should do what it can to maintain 
stability in the value of gold itself, but that is not a problem which 
can be solved in any way by one central bank; it must be the work 
in cooperation of all central banks. ' ' 

Chairman Brand pointed out that the central banks, including 
the Federal Reserve System, had to work together to keep the world 
on the gold -standard and. to keep up the price of gold. The League 
of Na'tions~wIs set up to carry out these two objectives. 

Jeremiah Smith said that : 

"Before the "World War there was little coooperation between 
the central banks of the different countries. The Experts' Conference 
of 1929 set up the Bank for International Settlements. It is imperative 

— 73 — 

that an institution of this sort, wMeh would he carrying on trans- 
actions in all the important money markets of the world, should be 
governed by public interest. These considerations suggested im- 
mediately that the appropriate agencies for appointing the directors 
of the International Bank were the central banks of issue of the dif- 
ferent countries, for these banks are relatively free from government 
influence. The other important benefit to be expected from the 
establishment of the Bank for International Settlements lies in its 
furnishing a' regular meeting-place for the representatives of central 
banks, where the common problems of world finance may be discussed 
in a broad-minded manner. The Bank should vastly increase the 
prospects for international cooperation in the field of finance. The 
United States Government has announced that it would have nothing 
to do ■officially with the Bank, although apparently it does not object 
to having individuals participate at their own risk in the enterprise, 
if they are associated in no way with the Government or the Federal 
Reserve System." 

The Government's cool attitude towards "the Bank for Inter- 
national Settlements was short-lived, soon maintained a Trea- 
sury representative at the Bank for International Settlements, H. 
Merle Cochran, who was special liason officer from the United States 
Embassy in Paris. The Bank soon became known as the "Central 
Bankers' Club", where they could discuss world finance in a broad- 
minded manner, relatively free from "newspaper reporters or public- 
minded citizens. Paul Binzig points out that "Meetings between 
Central Bankers are always either concealed or given obviously 
untrue explanations." The Bank for International Settlements was 
an international hideaway for them. 

Paul Warburg's original plan for the Federal Reserve System, 
which was presented to Congress as the Aldrieh Plan, had provided 
for the System to have branches in the principal foreign countries. 
Congress refused to approve such a provision, not realizing the 
exigencies of international' finance, but the League of Nations later 
remedied this lack by setting up central banks in many countries 
which did not have them. These central banks, particularly those in 
South America, worked so closely in cooperation with the Federal 
Reserve System that they were, in effect, branch banks of the System. 
The officials of the Department of State stationed in those countries 
have seen to it that these central banks did their job. 

In its report for 1918, the Federal Reserve Bank of New York 
outlined the arrangements which it had made with foreign banks on 
lehalf of all reserve Icmks, whether those reserve banks liked it or not. 
The Federal Reserve Bank of New York has always handled foreign 
correspondence with foreign central banks. 

:t The following relationships, with the approval of the Federal 

— 74— 

Reserve Board, have been concluded between the Federal Reserve 
Bank of New York and foreign banks or governments : 

BANK OF ENGLAND: This is an arrangement of a formal 
character, covered by written agreement, ratified by the directors 
of the two institutions, covering in detail the basis of the principal 
operations and making a very close, complete, and effective agency. 
The business thus far transacted has been very limited, but under 
the agreement 'can be extended whenever the need arises. 

BANK OF FRANCE : A somewhat limited agreement has been 
effected with the Bank of France, which it is hoped and expected 
by both institutions will soon ripen into a closer relationship. 

BANK OF ITALY: A mutual agreement has been entered into 
between this institution and the Federal Reserve Bank of New York, 
whereby each has appointed the other its correspondent. No business- 
has been or is likely to be transacted between the two institutions^ as 
long as arrangements for dealing with exchange problems growing 
out of the war are dealt with by the Governments of the two nations. 

BANK OF JAPAN: Mutual arrangements, similar to those 
established with the Bank of Italy, have been concluded with the 
Bank of Japan, and although no active business has yet been trans- 
acted, it is hoped that, as in the case of other foreign agents and 
correspondents, a more active relationship will develop when inter- 
national co mm erce resumes its natural course. 

agency appointments were effected between the Philippine National 
Bank and this bank, but as the former has an active branch of its 
own in New York, the relationship, while ready for operations at any 
time, is likely to be largely of an emergency character. 

DE NEDERLANDSCHE BANK: During 1918, at the request 
of the Treasury Department, this bank opened a current account 
With de Nederlandsehe Bank for the purpose of receiving therein, 
for the use of the Treasury Department, the proceeds in guilders of 
wheat and other commodities. 

ARGENTINA: Early in 1918 an important arrangement was 
entered into between the United States and the Argentine Govern- 
ments whereby by the Federal Reserve Bank of New York and the 
Banco de la Nacion appointed each other as correspondents, and the 
former undertook, to receive deposits not exceeding $100,000,000 ex- 
portable in gold coin after the proclamation of peaee and the deposit 
of over $16,000,000 in gold coin then on deposit, earmarked, in New 
York, and since then withdrawn and exported. The purpose of this 
agreement, which has proved successful in operation, was to stabilize 
the badly demoralized exchange situation between the two- countries. 

DE JAVASCHE BANK: The arrangement effected in April, 
relating to deposits in current account, investments, collections and 
the earmarking of gold, has continued in active operation. The Federal 

X —75 — 

Reserve Bank of New York lias formally appointed de Javasche Bank 
its agent and correspondent in Java, and in tarn has acted as New 
York agent and correspondent of. de Javasche Bank." 

The aforegoing are typical arrangements made by the Federal 
Reserve Bank of New York, acting as agent for the entire System, 
with foreign central banks. It has always kept considerable quantities 
of gold in its vaults in New York which is earmarked for various 
foreign central banks, and the sizes and importance of this gold, 
sometimes amounting to hundreds of millions of dollars, has made it 
appear , somewhat improper to have international gold dealers such 
as Albert Strauss and Eugene Meyer, Jr. on the Federal Reserve 
Board of Governors. 

Further proof of the international purposes of the Federal Re- 
serve Act of 1913 is provided by the "Edge Amendment", of Decem- 
ber 24, 191.9, which authorizes the organization of corporations ex- 
pressly for "engaging in international or foreign banking or other 
international or foreign financial operations, including the dealing 
in gold Or bullion, and the holding of stock in foreign corporations." 
On commenting on this amendment, E. W. Kemmerer, economist 
from Princeton University, remarked that : 

"The federal reserve system is proving to be a' great influence in 
the internationalizing of American trade and American finance." 

The historic fact that this internationalizing of American trade 
and American finance has been the direct cause for involving us in two 
world wars does not disturb Mr. Kemmerer or any other well-paid 
economist. There is plenty of evidence to prove how Paul Warburg 
used the Federal Reserve System as the instrument for getting trade 
acceptances adopted on a wide scale by American businessmen. 

_ The use of trade acceptances, (which are the currency of inter- 
national trade) by bankers and corporations in the United States 
prior to 1915 was practically unknown. The coming to power of the 
Federal Reserve System exactly parallels the increase in the use of 
acceptances in this country, nor is this a coincidence. The men who 
Wanted the Federal Reserve System were the men who set up 
acceptance banks and profited by the use of acceptances. The leader 
of these men was Paul "Warburg. 

As. early as 1910, the National Monetary Commission began to 
issue ^pamphlets and other propaganda urging bankers and business- 
men in this country to adopt trade acceptances in their transactions. 
For three years the Commission carried on this campaign, and the 
Aldrich Plan, written mainly by Paul Warburg, and presented to 
Congress as the work of the Commission, included a broad provision 
authorizing the introduction and use of bankers' acceptances into the 
American system of commercial paper. :.. 

The Federal Reserve Act of 1913 as passed by Congress did not 
specifically authorize the use of acceptances, and the Federal Re- 

— 76 — 

serve Board in 1915 and 1916 defined " trade acceptance", .further 
defined by Regulation A, Series of 1920, and further defined by- 
Series 1924. One of the first official acts of the Board of Governors 
in 1914 was to grant acceptances a preferentially low rate of discount 
at Federal Reserve Banks. Since acceptances were not being used 
in this country at that time, no explanation of business exigency could 
be advanced for this action. It was apparent that someone in power 
on the Board of Governors wanted the adoptance of acceptances. 

The National Bank Act of 1864, which was the determining 
financial authority of the United States until November, 1914, when 
it was replaced by the Federal Reserve Act, did not permit banks to 
lend their credit. Consequently, the power of banks to create money 
was greatly limited. We did not have a bank of issue, that is, a 
central bank, which could create money in large amounts. To get a 
central bank, the bankers forced money panic after money panic 
on the business people of the United States, by shipping gold out of 
the country, creating a money shortage, and then importing it back. 
After we got our central bank, the Federal Reserve System, there 
was no longer any need for a money panic, beca'use the banks could 
create money. However, the panic as an instrument of power over 
the business and financial community was used again on two im- 
portant occasions, in 1920, causing the Agricultural Depression, be- 
cause state banks and trust companies had refused to join the Federal 
Reserve System, and in 1929, eausing the Great Depression, which 
centralized all power in this country in the hands of a few great 

A trade acceptance is a draft drawn by the seller of goods on the 
purchaser, and accepted by the purchaser, with a time of expiration 
stamped upon it. The use of tra'de aeeeptances in the wholesale mar- 
ket supplies short-term, assured eredit to carry goods in process of 
production, storage, transit, and marketing. It facilitates domestic 
and foreign commerce. Seemingly, then, the bankers who wish to re- 
place the open-book account system with the trade acceptance system 
were progressive-minded men who wished to help American import- 
export tra'de. Much propaganda was issued to that effect, but this, 
was not the story. 

The open-book system, heretofore used entirely by American busi- 
ness people, allowed a discount for cash. The acceptance system how- 
ever, discourages the use of cash, by allowing a discount for credit. 
The open-book system also allowed much easier terms of payment, 
with liberal - extensions on the debt. The acceptance does not allow 
this, since it is a short-term eredit with the time-date stamped upon 
it. It is out of the seller's hands, and in the hands of a bank, usually 
an acceptance bank, which does not allow any extension of time. Thus, 
the a'doption of acceptances by American businessmen during the 
1920s greatly facilitated the domination and swallowing up of small 

— 77 — 

business into huge trusts, which culminated in the crash of 1929. 

Trade acceptances had been used to some extent in the United 
States before the Civil "War. During that war, exigencies of trade had 
destroyed the acceptance as a credit medium, and it had not come 
back into favor in this country, our people preferring the simplicity 
and generosity of the open book system. Open-book accounts are 
single-name commercial paper, bearing only the name of the debtor. 
Acceptances are two-name paper, bearing the name of the debtor and 
the creditor, Thus they are much more acceptable by banks. To the 
creditor, under the open-book system, the debt is a liability. To the 
acceptance bank holding an acceptance, the debt is an asset. The men 
who set up acceptance banks in this country, under the leadership of 
Paul Warburg, secured control of the billions of dollars of credit 
existing as open accounts on the books of American businessmen. 

Governor Marriner Eccles of the Federal Reserve Board stated 
before the House Banking and Currency Committee that: 

"Debt is the basis for the creation of money." 

The holders of trade acceptances got the use of billions of dollars 
worth of credit-money, besides the rate of interest charged upon the 
acceptance itself. It is understandable why Paul Warburg should 
have devoted so much time, money, and energy to getting acceptances 
adopted in this country. 

On September 4, 1914, the National City Bank accepted the first 
timedraf t drawn on a national bank under provisions of the Federal 
Eeserve Act of '1913., This was the beginning of the end of the open- 
book account system as an important factor in wholesale trade. 
Beverly Harris, vice-president of the National City Bank of New 
York, issued a pamphlet in 1915 stating that: 

"Merchants using the open account system are usurping the 
functions of bankers." 

This was a plain statement of the purpose of Warburg and his 
bunch who wanted "monetary reform" in this country. They were 
out to get control of all credit in the United States, and they got it, 
by means of the Federal Reserve System and the acceptance system. 

The First World War was a boon to the introduction of trade 
acceptances, and the volume jumped to four hundred million dollars 
in 1917, growing through the" 1920s to more than a billion dollars a 
year, which culminated in a" high peak just before the Great Depres- 
sion of 1929-31. The Federal Reserve Bank of New York's charts 
show that its use of acceptances reached a peak in November 1929, 
the month of the stock market crash, an declined sharply thereafter. 
The acceptance people ha'd got what they wanted, which was control 
of American business and industry. Fortune Magazine in February 
of 1950 pointed out that: 

"Volume of acceptances declined from $1,732 million. in 1929 to 
$209 million in 1940, because of the concentration of acceptance 

— 78 — 

banking in a few hands, and the Treasury's low-interest policy, which 
made direct loans cheaper than acceptance. There has been a slight 
upturn since the war, but it is often cheaper for large companies to 
finance imports from their own coffers." 

In other words, the "large companies", more accurately, the 
great trusts, now have control of credit and have not needed 
acceptances. Their use did not increase rapidly among American 
businessmen, and a great deal of propaganda wa's necessary to foster 
them. Besides the barrage of propaganda issued by the Federal Re- 
serve System itself, the National Association of Credit Men, the 
American Bankers' Association, and other fraternal organizations of 
the. New York bankers devoted much time and money to distributing 
acceptance propaganda. Even their flood of lectures and pamphlets 
proved insufficient, and in 1919 Paul "Warburg organized the 
American Acceptance Council, which was devoted entirely to ac- 
ceptance propaganda. 

The first convention beld by this association at Detroit, Michigan, 
on June 9, 1919, coincided with the annual convention of the National 
Association of Credit Men, held there on that date, so that "interested 
observers might with facility participate in the lectures and meetings 
of both groups, ' ' according to a pamphlet issue by the American Ac- 
ceptance Council. 

Paul "Warburg was elected President of this organization, and 
later became Chairman of the Executive Committee of the American 
Acceptance Council, a position whieh he held until his death in 1932. 
The Council published lists of corporations using trade acceptances, 
all of them businesses in whieh Kuhn, Loeb Co. or its affiliates held 
control. Lectures given before the Council or by members of the Coun- 
cil were attractively bound and distributed free by the National City 
Bank of New Tork to the country's businessmen. 

Louis T. McFadden, Chairman of the House Banking and Cur- 
rency Committee, charged in 1922 that the American ' Acceptance 
Council was exercising undue influence on the Federal Reserve Board, 
and called for a Congressional investigation, but Congress was not in- 

At the second annual convention of the American Acceptance 
Council, held in New York on December 2, 1920, President Paul 
"Warburg stated : 

"It is a great satisfaction to report that during the year under 
review it was possible for the American Acceptance Council to further 
develop and strengthen its relations with the Federal Reserve Board." 

During the 1920s, Paul Warburg, who had resigned from the 
Federal Reserve Board after holding a position as Governor for a 
year in wartime, because his brother was head of the German Secret 
Service, continued to exercise direct personal influence on the Federal 
Reserve Board by meeting with the Board as President of the Federal 

— 79 — 

Advisory Board and as President of the American Acceptance Coun- 
cil. He -was, from its organization in 1920 until Ms death in 1932, 
Chairman of the Board of the International Acceptance Bank of New 
York, the largest acceptance bank in the world. His brother, Felix M. 
Warburg also a partner in Kuhn, Loeb Co., was director of the Inter- 
national Acceptance Bank, and Paul's son, James Paul Warburg, 
was Vice-President. Paul Warburg was also a director on other 
important acceptance banks in this country, such as the Westinghouse 
Acceptance Bank, which were organized in the United States im- 
mediately after the World War, when the headquarters of the inter- 
national acceptance market was moved from London to New York, 
and Paul Warburg became the most powerful acceptance banker in 
the world. 

It was the transference of the acceptance market from England 
to this country which gave rise to Thomas Lamont's ecstatic speech 
before the Academy of Political Science in 1917 that : 

"The dollar, not the pound, is now the ba'sis for international 

Visible proof of the undue influence of the American Acceptance 
Council on the Federal Keserve Board, about which Congressman 
MeFadden complained, is the chart showing the rate-pattern of the 
Federal Reserve Bank of New York during the 1920s. The Bank's 
official discount rate follows exactly for nine years the ninety-day 
bankers' acceptance rate, and the Federal Reserve Bank of New 
York sets the discount rate for the rest of the Reserve Banks. Dur- 
ing this period, other rates of this Bank, such as the call-money rate, 
show remarkable variations, but the official rate and the acceptance, 
rate move along as one. 

Chapter Eleven 

In 1921, President Harding was praised for securing Andrew Mel- 
Ion's services as Secretary of the Treasury. Mr. Mellon was a mem- 
ber of the infamous "Black Cabinet", two members of which were 
indicted and prosecuted for defrauding the United States of America, 
Attorney General Harry M. Daugherty, and Secretary of the Interior 
Albert Fall. Assistant Secretary of the Navy Theodore Roosevelt, Jr., 
son of the twenty-sixth President of the United States, was the man 
who persuaded President Harding to sign the papers turning over 
the hundred million dollar oil reserves of Teapot Dome to Roosevelt's 
employer, Harry Sinclair. Roosevelt had been a director in the Sinclair 
Oil Company. His brother Archibald was a director of the Sinclair 
Oil Company at the . time of this swindle, yet Roosevelt was never 
indicted for his key role in this criminal conspiracy against the 
people of the United States. Andrew Mellon during his decade as 
Secretary of the Treasury surpassed all these men in the enormity 

— 80 — 

of his frauds against the American people. As an ex-officio member 
of the Federal Reserve Board, he ahetted in the credit expansion of* 
the. 1920s which culminated in the Great Depression of 1929-31, but 
he was far more culpable and subject to prosecution for his outrageous 
tax rebate policy during his term of office. He returned to such big 
corporations as United States. Steel, in which he was a dominant 
partner, more than twenty billions of dollars in tax rebates, including 
all the corporate taxes which United States Steel had paid in 1917 
and 1918 on its enormous wartime profits during the First "World 
War. Andrew Mellon was one of the ten richest men in the country, 
and for power in finance and industry there was none to surpass bvm 
except Paul "Warburg. Andrew Mellon was the biggest banker in 
Pennsylvania, and he owned outright such immense corporations as 
Aluminum. Corp. of America. He was partner with Henry Friek 
in Friek's coke-processing patents, and he was partner with Bernard 
Baruch in many enterprises. It was Mellon's brother Richard who 
had won a sort of fame for his remark that : 

"You can't run a coal mine without ma'chine guns." 

Andrew Mellon reluctantly relinquished the office of Secretary 
of the Treasury in 1932 after there had been repeated demands in 
Congress for his impeachment on the grounds of his tax rebate policy 
to Mellon family corporations. He was succeeded by a man after hia 
own heart, Ogden Mills, director of many giant corporations such 
as Cerro de Pasco Copper Mines of Peru, National Biscuit Company, 
and Morgenthaler. Linotype Company. 

Other members of the Federal Reserve Board during the 1920s, 
when it planned and executed the Great Depression as a deliberate 
means of gaining control over American finance and industry, were 
men like Albert Strauss, J. &. "W. Seligman Company of New York 
and Paris, who had large interests in Cuban sugar and New York 

Edmund Piatt, former Chairman of the House Committee on 
Banking and Currency, who was appointed in 1920, and who re- 
signed in 1930 just after being appointed to a second ten-year term. 
He was given a position as Vice-President of the Marine Midland Cor- 
poration, in order to make room on the Federal Reserve Board for 
Eugene Meyer, Jr. 

D. R. Crissinger, Comptroller of the Currency for Harding, an 
old friend from Marion, Ohio, was one of the famous poker-playing 
cronies of the President. 

George R. James was appointed member of the Board of Gov- 
ernors in 1924. He had been Chief of the Cotton Section of the "War 
Industries Board under Bernard Baruch during the First "World "War, 
and could be depended upon to follow that great democrat's orders. 

David C. Wills had been appointed member of the Board of Gov- 
ernors in 1920. He was a Vice-President of the Mellon National Bank 

— 81 — 

in Pittsburgh, and went back to that job after his term of public 

Henry M. Dawes, who represented big public utility interests 
in Chicago, served as Comptroller of the Currency in 1923. 

j. W. Mcintosh replaced Dawes. as Comptroller of the Currency 
in 1924 He resigned in 1928 to become a' member of the firm of J. 
W. Wollman Company, stock brokers, New York. 

R. A. Young, Governor of the Federal Reserve Bank of Minnea- 
polis, joined the Federal Reserve Board of Governors in 1927. In 

1930, after playing his part in the Great Depression, he was advanced 
to the position of Governor of the Federal Reserve Bank of Boston. 

During the 1920s, the Board of Governors retained two of its 
first members, C. S. Hamlin and Adolph C. Miller. These men found 
themselves careers ak arbiters of the nation's monetary policy. Hamlin 
was on the Board from 1914 until 1936, when he was appointed 
Special Counsel to the Board, while Miller served from 1914 until 

1931. These two men were allowed to stay on the'Board so many years 
because they were both eminently respectable men who gave the Board 
a certain prestige in the eyes of the public, and to those names no 
stigma of materialist motives could be attached. This was necessary 
during these years, when one big banker after another came on the 
Board, served for awhile, and went on to better things. Neither Miller 
nor Hamlin ever objected to anything that the New York bankers 
wanted. They changed the discount rate and they performed open 
market operation with Government securities whenever "Wall Street 
wanted them to. Behind them throughout the 1920s was the figure of . 
Paul "Warburg, who exercised a continuous and dominant influence as 
President of the Federal Advisory Council, on which he had such 
men of common interests with himself as Winthrop Aldrieh and J. 
P. Morgan, and as Chairman .of the Executive Committee of the 
American Acceptance Council. "Warburg was never too occupied with 
his duties of organizing such big international trusts as I. G. Far- 
ben, Westinghouse Corporation, and Agfa Ansco Film Corporation, 
to keep his hands off the nation's financial structures. His influence 
from 1902, when he arrived in this country as an immigrant from 
Germany, until 1932, the year of his death, was undoubtedly the most 
sinister and destructive influence ever foisted on the American people, 
even exceeding that of his puppet Woodrow "Wilson and the inter- 
national bond promoter Franklin D. Roosevelt. "Warburg's son, James 
Paul Warburg, continued to exercise such influence, being appointed 
Roosevelt's Director of the Budget when that great man assumed 
office in 1933, and setting up the Office of War Information, our 
official propaganda agency during the Second "World War. War- 
burg the Second remains a potent influence on the foreign policy 
of the "United States. 

The international gold dealings of the Federal Reserve System, 

— 82 — 

and its active support inriielping the League of Nations to force all 
the nations of Europe' and South .America back on the gold standard 
for the benefit- of international gold merchants like Eugene Meyer, Jr. 
and Albert Strauss^ is best demonstrated by a classic incident, the 
sterling credit of 1925. 

J. E. Darling wrote, in the English periodical, ' ' Spectator", on 
January 10, 1925, that : 

"Obviously, it is of the first importance to the United States 
to induce England to resume the gold standard as early as possible. 
An American controlled Gold Standard, •which must inevitably re- 
sult in the United States becoming the world's supreme • financial 
powetv makes England a tributary and satellite, and New York the 
world's financial centre." 

Mr. Darling fails to point out that the American people have as 
little to do with this as the British people, and that resumption of 
the gold standard by Britain would benefit only that small group of 
international gold merchants who own the world's gold. No wonder 
that Banker's Magazine gleefully remarked in July, 1925 that: 

"The outstanding event of the past half year in the banking 
world was the restoration of the gold standard." 

In May, 1925, the British Parliament passed the Gold Standard 
Act, putting Great Britain back on the gold standard. The Federal 
Eeserve System's major role in this event came out on March 16, 
1926, when George Seay, Governor of the Federal Eeserve Bank 
of Richmondj testified before the House Banking and Currency Com- 
mittee that : 

"A verbal understanding, confirmed by correspondence, extend- 
ed Great Britain a two hundred million dollar gold loan or credit. 
All negotiations were conducted between Benjamin Strong, Governor 
of the Federal Reserve Bank of New York, and Mr. Montagu Nor- 
man,. Governor 6f the Bank of England. The purpose of this loan Was 
to help England get back on the gold standard, and the loan was to 
be met by investment of Federal Preserve funds in bills of exchange 
and foreign securities." 

The Federal Reserve Bulletin of June, 1925, stated that: 

"Under its arrangement with the Bank of England the Federal 
Reserve Bank of New York undertakes to sell gold on credit to the 
Bank of England from time to time during the next two years, but 
not to exceed $200,000,000 outstanding at any one time." 

A two hundred million dollar gold credit ha'd been arranged by 
a verbal understanding between the international bankers, Benjamin 
Strong and Montagu Norman. It was apparent by this time that the 
Federal Reserve System had other interests at heart tha'n the financial 
needs of American business and industry. Great Britain's return to 
the gold standard was further facilitated by an additional gold loan 
of a hundred million dollars from J. P. Morgan Company. "Winston 

— 83 — 

Churchill, British Chancellor of the Exchequer, complained later that 
the cost to the British Government of this loan was $1,125,000 the 
first year, this sum representing the profit to J. P. Morgan Company 
in that time. 

In "The Fight for Financial Supremacy," Maemillan's, 1931, 
Paul Binzig, editorial writer for the London Economist, wrote that : 

"Almost immediately after "World War I a close cooperation 
was established between the Bank of England and, the Federal Re- 
serve authorities, and more especially with the Federal Reserve Bank 
of New York. This cooperation was largly due to the cordial relations 
existing between Mr. Montagu Norman of the Bank of England and 
Mr. Benjamin Strong, Governor of the Federal Reserve Bank of 
New York until 1928. On several occasions, the discount rate policy 
of the Federal Reserve Bank of New York was guided by a desire 
to help the Bank, of England. There ha's been close cooperation in the 
fixing of discount rates between London and New York." 

At the Senate Hearings on the Federal, Reserve System in 1931, 
H. Parker Willis, one of the authors and First Secretary of the 
Federal Reserve Board from 1914 until 1920, pointedly asked Gov- 
ernor George Harrison, Strong's successor as Governor of the Federal 
Reserve Bank of New York : 

"What is the relationship between the Federal Reserve Bank of 
New York and the money committee of the Stock Exchange?" 

"There is no relationship" Governor Harrison replied. 

"There is no assistance or cooperation in fixing the rate in any 
way?" asked Willis. 

"No," said Governor Harrison, "although on various occasions 
they advise us of the state of the money situation, and what they 
think the rate ought to be. ' ' This was an absolute contradiction of his 
statement that "There is no relationship." The Federal Reserve Bank 
of New York, which set the discount rate for the other Reserve Banks, 
actually maintained a close liason with the money committee of the 
Stock Exchange. 

The House Stabilization Hearings of 1928 proved conclusively 
that the Governors of the Federal Reserve System had been holding 
conferences with heads of the big European central banks. A num- 
ber of Congressmen knew that something big was being planned, but 
how big it was and how shattering its effect would be, they had no 
conception. Even had they known the details of the plot which was to 
culminate in the Great Depression of 1929-31, there would have been 
absolutely nothing they could have done to stop it. The international 
bankers who controlled gold movements could inflict their will on 
any country, and the United States to them was as helpless as any 

Notes from these House Hearings follow: 

MR. BEEDY: "I notice on your chart that the lines which pro- 

— 84 — 

duee the most violent fluctuations are found under "Money Rates 
in New York." As. the rates of money rise and fall in the big cities, 
the loans that are made on investments seem to take advantage of 
them, at present, a quite violent change, while industry in general 
does not seem to avail itself of these violent changes, and that line 
is fairly even, there being no great rises or declines. 

GOVERNOR ADOLPH MILLER: This was all more or less in 
the interests of the international situation. They sold gold credits in 
New York for sterling balances in London. 

REPRESENTATIVE STRONG (No relation to Benjamin): 
Has the Federal Reserve Board the power to attract gold to this 

E. A. GOLDENWEISER, research director for the Board: The 
Federal Reserve Board could attract gold to this country by making 
money rates higher. 

GOVERNOR ADOLPH MILLER: I think we are very close to 
the point where any further solicitude on our part for the monetary 
concerns of Europe can be altered. The Federal Reserve Board last 
summer, 1927, set out by a policy of open-market purchases, followed 
in course by reduction on the discount rate at 'the Reserve Banks, 
to ease the credit situation and to cheapen the cost of money. The 
official reasons for that departure in credit policy were that it would 
help to stabilize international exchange and stimulate the exportation 
of gold. 

CHAIRMAN MCFADDEN: Will you tell us briefly how that 
matter was brought to the Federal Reserve Board and what were the 
influences that went into the final determination ? 

GOVERNOR ADOLPH MILLER: You are asking a question 
impossible for me to answer. 

CHAIRMAN MCFADDEN: Perhaps I can clarify ii^-where 
did the suggestions come from that caused this decision of the change 
of rates last summer 1 

GOVERNOR ADOLPH MILLER: The three largest central 
banks in Europe had sent representatives to this country. There were 
the Governor of the Bank of England, Mr. Montagu Norman, the 
President of the German Reiehsbank, Mr. Hjalmar Sehacht, and Pro- 
fessor Rist, : Deputy Governor of the Bank of France. These gentlemen 
were in conference with officials of the Federal Reserve Bank of 
New York. After a week or two, they appeared in "Washington for 
the better part of a da'y. They came down the evening of one day, 
and were the guests of the Governors of the Federal Reserve Board 
the following day, and left that afternoon for New York. 

CHAIRMAN MCFADDEN: "Were the members of the Board 
present at this luncheon? 

GOVERNOR ADOLPH MILLER: Oh, yes, it was given by 

— 85 — 

the Governors of the Board for the purpose of bringing all of us 

CHAIRMAN MCFADDEN: Was it a social affair, or were mat- 
ters of importance discussed? 

GOVERNOR. MILLER: I would say it was mainly a social affair. 
Personally, I had a long conversation with Dr. Schacht alone before 
the luncheon, and also one of considerable length with Professor Rist. 
After the luncheon I began a conversation with Mr. Norman, which 
Was joined in by Governor Strong of New York. 

CHAIRMAN MCFADDEN: "Was that a formal meeting of the 


CHAIRMAN MCFADDEN : It was just an informal discussion 
of the matters they had been discussing in New York? 

GOVERNOR MILLER: I assume so. It was mainly a' social 
occasion. "What I said was mainly in the nature of generalities. The 
heads of these central banks also spoke in generalities. 

MR. KING: What did they want? 

GOVERNOR MILLER: They were very candid in answers to 
questions. I wanted to have a talk with Mr. Norman, and we both 
stayed behind after luncheon, and were joined by the other foreign 
representatives and the officials of the New York Reserve Bank. 
These gentlemen were all -pretty concerned with the way the gold 
standard ivas working. They were therefore desirous of seeing an 
easy money market in New York and lower rates, which would deter 
gold from moving from Europe to this country. That would be very 
much in the interest of the international money situation which then 

MR. BEEDY : Was there some understanding arrived at between 
the representatives of these foreign banks and the Federal Reserve 
Board or the New York Federal Reserve Bank? 


MR. BEEDY: It was not reported formally? 

GOVERNOR MILLER : No. Later, there came a meeting of the 
Open-Market Policy Committee, the investment policy committee of 
the Federal Reserve System, by which and to which certain recom- 
mendations were made. My recollection is that about eighty million 
dollars worth of securities were purchased in August consistent with 
this plan. 

CHAIRMAN MCFADDEN : Was there any conference between 
the members of the Open-Market Committee and those bankers from 
abroad ? 

GOVERNOR MILLER : They may have met them as individuals, 
but not as a committee. 

MR. KING : How does the Open-Market Committee get its ideas ? 
GOVERNOR MILLER: They sit a'round and talk about it. I 

— 86 — 

do not know whose idea this was. It was distinctly a time in which 
there was a cooperative spirit at work, 

CHAIRMAN MCFADDEN : Ton have outlined here negotiations 
of very great importance. 

GOVERNOR MILLER: I should rather say conversations. 

CHAIRMAN MOP ADD EN : Something of a very definite char- 
acter took place? 


CHAIRMAN MCFADDEN: A change of policy on the part 
of our whole financial system which has resulted in one of the most 
unusual situations that has ever confronted this country financially 
(the stock market speculation boom of 1927-1929). It seems to me that 
a matter of that importance should have been made a matter of record 
in "Washington. 

GOVERNOR MILLER.- I agree with you. 

REPRESENTATIVE STRONG: Would it not have been a 
good thing if there had been a direction that those powers given to 
the Federal Reserve System should be used for the continued stabiliza- 
tion of the purchasing power of the American dollar rather than be 
influenced by the interests of Europe ? 

GOVERNOR MILLER: I take exception to that term 'influence.' 
Besides, there is no such thing as stabilizing the American dollar 
without stabilizing every other gold currency. They are tied together 
by the gold standard. Other eminent men who come here are very 
adroit in knowing how to approach the folk who make up the per- 
sonnel of the Federal Reserve Board. 

MR. STEAGALL: The visit of these foreign bankers resulted 
in money being cheaper in New York? 

GOVERNOR MILLER: Yes, exactly 

CHAIRMAN MCFADDEN: I would like to put in the record 
all who attended that luncheon in Washington. 

GOVERNOR MILLER: In addition to the names I have given 
you, there was also present one of the younger men from the Bank 
of France. I think all members of the Federal Reserve Board were 
there. Under Secretary of the Treasury Ogden Mills was there, and the 
Assistant Secretary of the Treasury, Mr. Schuneman, also, two or 
three men from the State Department, and Mr. Warren of the Foreign 
Department of the Federal Reserve Bank of New York. Oh yes, Gov- 
ernor Strong was present. 

CHAIRMAN MCFADDEN: This conference, of course, with all 
of these foreign bankers did not just happen. The prominent bankers 
from Germany, France, and England came here at whose suggestion ? 

GOVERNOR MILLER: A situation had been created that 
was distinctly embarrassing to London by reason of the impending 
withdrawal of a certain amount of gold which had been recovered by 
France and that had "originally been shipped and deposited in the 

— 87 — 

Bank of England by the French Government as a war credit. There 
Was getting to he some tension of mind in Europe because Prance 
was beginning to put her house in order for a return to the gold 
standard. The situation was one which called for some moderating in- 

MR. KING: Who was the moving spirit who got these people 
together ? 

GOVERNOR MILLER: That is a detail with which I am not 

REPRESENTATIVE STRONG: Would it not be fair to say 
that the fellows who wanted the gold Avere the ones who instigated the 
meeting ? 

GOVERNOR MILLER : They came over here. 

REPRESENTATIVE STRONG: The fact is that they came over 
here, they had a' meeting, they banqueted, they talked, they got the 
Federal Reserve Board to lower the discount rate, and to make the 
purchases in the open market, and they got the gold. 

MR. STEAGALL: Is it true that that action stabilized the 
European currencies, and upset ours? 

GOVERNOR MILLER: Yes, that was what it was intended to do. 

CHAIRMAN MCFADDEN: Let me caE your attention to the 
recent conference in Paris at which Mr. Goldenweiser, director of 
research for the Federal Reserve Board, and Dr. Burgess, assistant 
Federal Reserve Agent of the Federal Reserve Bank of New York, 
were in consultation with the representatives of the other central 
banks. Who called that conference ? 

GOVERNOR MILLER : My recollection is that it was called by 
the Bank of France. 

GOVERNOR YOUNG: No, it was the League of Nations who 
called them together. 

GOVERNOR MILLER: The more scientific you undertake to 
make Federal Reserve administration, the more dependent you make 
the men charged with it upon their advisors. I am a great believer in 
experts, when you know how to use them. I had a visit yesterday after- 
noon from a New York banker who said, 'Why is there so much 
mystery about gold movements? We get figures of shipping permits 
but there seems to be a great mystery regarding the earmarking of 

CHAIRMAN MCFADDEN (quoting from an article by H. Park- 
er Willis in the Journal of Commerce, May 17, 1928, entitled Inter- 
national Bank Tinkering) : "Ever since our Federal Reserve System 
was formed, it has suffered from back-stairs influences and behind- 
the-doors conferences. These conferences first aimed at the destruction 
of the authority of the Board itself, and gave rise to the famous 'coun- 
cil-of -governors' (Federal Advisory Council) whose doings never got 
into the newspapers." 

— 88 — 

Professor Gustav Cassel, the Scandinavian economist, testified at 
these Hearings, that : 

"When you desire to stabilize the value of gold, you have to 
cooperate 'with other countries, and particularly with their central 

The secret meeting between the Governors of the Federal Reserve 
Board and the heads of the European central banks was not held to 
stabilize anything. It was held to discuss the best way of getting the 
gold held in the United States by the System back to Europe to get 
the nations of that continent back on the gold standard. The League 
of Nations, had not yet succeeded in doing that, the objective for 
which that, body was set up in the first place, mainly because the 
Senate of the United States had refused to let "Woodrow "Wilson betray 
us to an international monetary authority. It took the Second "World 
War and Franklin D. Roosevelt to do that. Meanwhile, Europe ha'd 
to have the gold which we had, and the Federal Reserve System gave 
it to them, five hundred million dollars worth. The movement of that 
gold out of the United States caused the deflation of the stock boom, 
the end of the business prosperity of the 1920s, and the Great Depres- 
sion of 1929-31, the worst calamity which has ever befallen this nation. 
It is entirely logical to say that the American people suffered that 
depression as a consequence and a punishment for not wishing to join 
the League of Nations. The bankers knew what would happen when 
that five hundred million dollars worth of gold was sent to Europe. 
They wanted the Depression because it put the business and finance 
of the United States completely in their hands. 

The Hearings continue: 

MR. BEEDY: "Mr. Ebersole of the Treasury Department eon- 
eluded his remarks at the dinner we attended last night by saying 
that the Federal Reserve System did not want stabilization and the 
American businessman did not want it. They want these fluctuations 
in priees, not only in securities but in commodities, in trade generally, 
because those who are now in control are making their profits out of 
that very instability. If control of these people does not come in a 
legitimate way, there may be an attempt to produce it by general 
upheavals such as have characterized society in days gone by. Re- 
volutions have been promoted by dissatisfaction with existing con- 
ditions, the control being in the hands of the few, and the many pay- 
ing the bills. 

CHAIRMAN MCFADDEN: I have here a letter from a member 
of the Federal Reserve Board who was summoned to appear here. I 
Would like to have it put in the record. It is from Governor Cunning- 

Dear Mr. Chairman: 

For the past several weeks I have been confined to my home 
on account of illness and am now preparing to spend a few weeks 

— 89 — 

away from 'Washington for the purpose of hastening convales- 

Edward H. Cunningham 
. This is in answer to an invitation extended him to appear before 
our Committee. I also have a letter from George Harrison, Deputy 
Governor of the Federal Eeserve Bank of New York 
My dear Mr. Congressman : 

Governor Strong sailed for Europe last week. He has not 
been at all well since the first of the year, and, while he did 
appear before your Committee last March, it was only shortly 
after that that he suffered a very severe attack of shingles, which, 
has sorely racked his nerves. 

George L. Harrison, 
May 19, 1928 

I also desire to place in the record a statement in the New York 
Journal of Commerce, dated May 22, 1928, from Washington. 

'It is stated in well-informed circles here that the chief topic 
being taken up by Governor Strong of the Federal Reserve Bank of 
New York on his present visit to Paris is the arrangement of stabiliza- 
tion credits for France, Eumania, and Yugoslavia. A second vital 
question Mr. Strong will take up is the amount of gold France is to 
draw from this country.' " 

Further questioning by Chairman McFadden about the strange 
illness of Benjamin Strong brought forth the following testimony from 
Governor Charles S. Hamlin of the Federal Reserve Board on May 
23rd, 1928 : 

"All I know is that Governor Strong has been very ill, and he 
has gone over to Europe primarily, I understand, as a matter of 
health. Of course, he knows well the various offices of the European 
central banks and undoubtedly will call on them. ' 3 

Governor Benjamin Strong died a few weeks after his return 
from Europe, without appearing before the Committee. The cir- 
cumstances of his death recall the death of J. P. Morgan, a few 
weeks after being called to testify before the Pujo Committee in 
1913 at the Money Trust Hearings. 

The purpose of these hearings before the House Committee on 
Banking and Currency in 1928 was to investigate the necessity for 
passing the Strong Bill, presented by Representative Strong (no rela- 
tion of Benjamin the international banker), which provided that the 
Federal Reserve System be empowered to act to stabilize the purchas- 
ing power of the dollar. This had been one of the promises made by 
Carter Glass and Woodrow Wilson when they presented the Federal 
Reserve Act before Congress in 1913, and such a provision had actually 
been put in the Act by Senator Robert L. Owen, but Carter Glass' 
House Committee on Banking and Currency had struck it out. The 
traders and speculators did not want the dollar to become stable, be- 

— 90 — 

cause they would no longer be able to make a profit. The citizens of 
this country bad been led to gamble on tbe stock market in the 1920s 
because the traders had created a nationwide condition of instability. 

The Strong Bill of 1928 was defeated in Congress. These repre- 
sentatives of the people did not want stability. Nobody wanted the 
dollar to be stable except the workers and consumers, and they bad no 
voice in the functioning of the democracy. The closest the consumer 
public ever got to being represented in Congress was when the labor 
unions, owned by New York bankers, sent Communist-trained dele- 
gates .to the House and Senate in the 1930s. It is a sad comment on 
the development of our civic sense that the only people whom we ever 
allowed to use our voice were men in the service of a foreign ideology. 

Commodities could find their own prices, if they were not con- 
trolled by manipulators in the exchange markets, who, by buying and 
selling futures, send the price of commodities up and down. The law 
of supply and demand does not function in the prices of commodities, 
as Senator Elmer Thomas pointed out in 1938. 

The financial situation in the United States during the 1920s 
was characterized by an inflation of speculative values only. It was 
purely a trader-made situation. Prices of commodities remained fair- 
ly low, despite the incredible over-pricing of securities on the ex- 
change, far past the point where they could possibly earn a return. 
The purchasers did not expect their securities to return dividends. 
The whole idea was that they would hold them awhile and sell them 
at a' profit. It had to stop somewhere, as Paul "Warburg remarked in 
March, 1929, hoping to start the Crash. However, Wall Street did 
not let it stop until the people had put all their 1 savings into these 
over-priced securities. "We had the sad spectacle of the President of 
the United States, Calvin Collidge, acting as a shill or a come-on 
man for the stock market operators when he recommended to the 
American people that they continue buying on the market, in 1927. 
There had been some uneasiness about the inflated condition of the 
market, and the bankers showed their power by getting the President 
of the United States, the Secretary of the Treasury, and the Chair- 
man of the Board of Governors of the Federal Reserve System to issue 
statements that brokers' loans were not too high, and that the con- 
dition of the stock market was absolutely sound. 

Irving Fisher warned ^us in 1927 that the burden' of stabilizing 
prices all over the world would soon fall on the United States. One 
of the principal results of the Second World War was the establish- 
ment of a'n International Monetary Fund to do just that. Professor 
Gustav Cassel remarked in the same year that: 

"The downward movement of prices has not been a spontaneous 
result of forces beyond our control. It is the result of a policy deliber- 
ately framed to bring down prices and give a higher value to the 
monetary unit." 

— 91 — 

The Democratic Party, after passing the Federal Eeserve Act 
and leading us into the First World War, assumed the role of a loyal 
opposition party during the 1920s. They were on the outside of the 
political fence, and were supported during those lean years by liberal 
handouts from Bernard Baruch, according to his biography. How far 
outside of it they were, and how little chance they had in 1928, is 
shown by a plank in the official Democratic Party platform adopted 
at Houston on June 28, 1928 : 

"The administration of the Federal Eeserve System for the 
advantage of the stock-market speculators should cease. It must be 
administered for the benefit of farmers, wage-earners, merchants, 
manufacturers, and others engaged in constructive business." 

This idealism insured defeat for its protagonist, Al Smith, Who 
was nominated by Franklin D. Eoosevelt. The campign against Al 
bmith also was marked by low appeals to religious intolerance, be- 
cause he was a Catholic. The bankers stirred up anti- Catholic senti- 
ment all over the country to achieve the election of their World War 
I protege, Herbert Hoover. 

Instead of being used to promote the financial stability of the 
country as had been promised by Woodrow Wilson when the Act was 
passed, financial instability has been steadily promoted by the Federal 
Eeserve Board. An official memorandum issued by the Board on 
March 13, 1939, stated that: 

''^ e Board of Governors of the Federal Eeserve System opposes 
any bill which proposes a stable price level." 

K E. Bopp said before the American Economic Association in 
1944 that during the 1920s, the Federal Eeserve System directed 
open market operations not merely as a tool to make bank rate ef- 
fective, but as a coequal instrument of policy "to offset the effects 
of gold movements." The selling out of the United States Treasury 
to international gold merchants occured in 1906, when Secretary 
of the Treasury Shaw inaugurated a - gold-buying policy of advancing 
money to the big New York banks with which to purchase gold from 
abroad, so that no record of its origins need be kept by the Treasury. 

Politically, the Federal Eeserve Board was used to advance the 
election of the bankers' candidates during the 1920s. The Literary 
Digest on August 4, 1928, said, on the occasion of the Federal Ee- 
serve Board raising the rate to 5% in a Presidential year: 

"This reverses the politically desirable cheap money policy of 
1927, and gives smooth conditions on ~the stock market. It was at- 
tacked, by the Peoples' Lobby of Washington, D. C. which said that 
'This increase at a time when farmers needed cheap money to finance 
the harvesting of their crops was a direct blow at the farmers, who 
had begun to get back on their feet after the Agricultural Depression 
of 1920-21.' " 

— 92 — 

The New. York World said on that occasion: 

"Criticism of Federal Beserve Board policy by many investors 
is not based on its attempt to deflate the stock market, but on the 
charge that the Board itself, by last year's policy, is completely 
responsible. for such stock market inflation as exists." 

How the Federal Reserve Board is responsible for the stock mar- 
ket inflation of the 1920s and the subsequent Depression is clearly ex-, 
plained by Emmanuel Goldenweiser, director of research for the Board 
since 1920. Speaking before the American Economic Association in 
1947, he said: 

"Adoption in 1923 of the principle that open market operations 
shall be guided with a view to accomodating commerce and business 
and with regard to their bearing upon the general credit situation of 
the country was the aim of the Federal Reserve Board. It placed open 
market policy on the same basis as discount rate policy. One part of 
open market operations, however, the purchase and liquidation oy Re- 
serve Banks of acceptances, was left outside the control of the Open 
Market Committee, and even of the Federal Reserve Board, The 
acceptance iusiness was carried on as a separate activity T>y the Be- 
serve Banks." 

This was because the acceptance business was the private preserve 
of Paul Warburg. 

Goldenweiser went on to discuss at this meeting : 

"The adoption of an easy money policy in 1924, was reflected 
in both the reduction of discount rates and in open market purchases. 
It wa's a period when business was declining, but credit was easy 
and there was a movement of gold into the country. The reasons for 
the policy of the Board were largely international. It was at that 
time that the foundation for future credit expansion was laid, be- 
cause the proceeds of the gold and the security purchases during 
this period were not used to reduce discounts, Which were already 
low, but were added to member banks' reserve balances. These 
additional balances were largely the basis of the speculative credit 
expansion which occurred in the next four or five years." 

Goldenweiser reveals the . error of those critics of the Federal 
Reserve System who sought to place blame on the System for the 
Crash of 1929 by claiming that the Board's easy-money policy of 
1927 was responsible for the stock market boom The policy of 1927 
could not have created such an enormous credit expansion. Credit 
had been pyramiding upon itself since 1923 and 1924,. when hundreds 
of millions of dollars in gold were poured into this country from 
France and England. Goldenweiser says: 

"A similar but less important program of easy money was, 
pursued in 1927." 

A more damning survey of the Federal Reserve System's first 
fifteen years appears in the North American Review of May, 1929, 

— 93 — 

by H. Parker "Willis, professional economist who was one of the 
authors of the Act and First Secretary of the Board from 1914 until 

"My first talk with President-elect Wilson was rn 1912. Our 
conversation related entirely to banking reform. I asked whether he 
felt confident we could secure the administration of a suitable law, 
and how we should get it applied and enforced. He answered : 

'We must rely on American business idealism.' He sought for 
something which could be trusted to afford opportunity to American 
Idealism.. It did serve to finance the World War and to revise 
American banking practices. The element of idealism that the Presi- 
dent prescribed and believed we could get on the principle of noblesse 
oblige from American bankers and business men was not there. Since 
the inauguration of the Federal Reserve Act we have suffered one of 
the most serious financial depressions and revolutions ever known 
in our history, that of 1920-21. We have seen our agriculture pass 
through a long period of suffering and even of revolution, during 
which one million farmers left their farms, due to difficulties with 
the price of land and the odd status of credit conditions. We have 
suffered the most' extensive era of bank failures ever known in this 
country. Forty-five hundred banks have closed their doors since the 
Reserve System began functioning. In some Western towns there have 
been times when all banks in that community failed, and given banks 
have failed over and over again. There has been little difference in 
liability to failure between members and non-member banks of the 
Federal Reserve System. 

"Wilson's choice of the first members of the Federal Reserve 
Board was not especially happy. They represented a composite group 
chosen for the express purpose of placating this, that, or the! other 
big interest. It was not strange that appointees used their places 
to pay debts. When the Board was considering a resolution to the ef- 
fect that future members of the reserve system should be appointed 
solely on merit, because of the demonstrated incompetence of some of 
their number, Comptroller John Skelton Williams moved to strike 
out the word 'solely', and in this he was sustained by the Board. The 
inclusion of certain elements (Warburg, Strauss, etc.) in the Board 
gave an opportunity for catering to special interests that was to 
prove disastrous later on. 

"President Wilson erred, as he often erred, in supposing that 
the holding of an important office would transform an incumbent and 
revivify his patriotism. The Reserve Board reached the low ebb of the 
Wilson period with the appointment of a member who was chosen 
for his ability to get delegates for a- Democratic candidate for the 
Presidency. However, this level was not the dregs reached under 
President Harding. He appointed an old crony, D. R. Orissinger, as 
Governor of the Board, and named several other super-serviceable 

— 94 — 

politicians to other places. Before Ms death, he had done his utmost 
to debauch the whole undertaking. The System has gone steadily 
downhill ever since. 

"Reserve Banks had hardly assumed their first form when it 
became apparent that local .bankers had sought to use them as a 
means of taking care of 'favorite 'sons', that is, persons who had by 
common consent become a kind' of general charge upon the banking 
community, or ineffieients of various kinds. When reserve directors 
were to be chosen, the country bankers often refused to vote, or, when 
they voted, cast their ballots as directed by city correspondents. In 
these circumstances popular or democratic control of reserve banks 
was out of the question. Reasonable efficiency might have been 
secured if honest men, recognizing their public duty, had assumed 
power. If such men existed, they did not get on the Federal Reserve 
Board. In one reserve bank today the chief management is in the 
hands of a man who never did a day's actual banking in his life, 
while in another reserve institution both Governor and Chairman are 
the former heads of now defunct banks. "They naturally have a high 
failure record in their district. In a majority of districts the standard 
of performance as judged by good banking standards is disgracefully 
low among reserve executive officials. The policy of the Federal Re- 
serve Bank of Philadelphia' is known hi the System as the 'Friends 
and Relatives Banks.' 

"It was while making war profits in considerable amounts that 
someone conceived the idea of using the profits to provide them- 
selves with phenomenally costly buildings. Today the Reserve Banks 
must keep a full billion dollars of their 1 money constantly at work 
merely to pay their own expenses in normal times. 

"The best illustration of what the System has done and not 
done is offered by the experience which the country was having with 
speculation, in May 1929. Three years prior to that, the present bull 
market was just getting under way. In the autumn of 1926 a group 
of bankers, among them one of world-famous name, were sitting a'f a 
table in a Washington hotel. One of them raised the question whether 
the low discount rates of the System were not likely to encourage 

"Yes,' replied the famous banker, 'they will, but that cannot 
be helped. It is the price we must pay for helping Europe.' 

"It may well be questioned whether the encouragement of 
speculation by the Board has been the price paid for helping Europe 
or whether it is the price paid to induce a certain class of financiers 
to help Europe, but in either case European conditions should not 
have had anything to do with the Board's discount policy. The fact 
of the matter is that the Federal Reserve Banks do not come into 
contact with the community. 

"The 'small man' from Maine to Texas has gradually been led 

— 95 — 

to invest Ms savings in the stock market, with, the result that the rising 
tide of speculation, transacted at a higher and higher rate of speed, 
has swept over the legitimate business of the eountry. 

"In March, 1928, Roy A. Young, Governor of the Board, was 
called before a Senate Committee. 'Do you think the brokers' loans 
are too high?' he was asked. 

'I am not prepared to say whether brokers' loans are to high 
or too low,' he replied, 'but I am sure they are safely and conserva- 
tively made.' 

"Secretary of the Treasury Mellon in a formal statement as- 
sured the country that they were not too high, and Ooolidge,. using 
material supplied him by the Federal Reserve Board, made a plain 
statement to the country that they were not too high. The Federal 
Reserve Board, charged with the duty of protecting the interests of 
the average man, thus did its utmost to assure the average man that 
he should feel no alarm about his savings. Yet the Federal Reserve 
Board issued on February 2, 1929, a letter addressed to the Reserve 
Bank Directors cautioning them against the grave danger of further 

"What eould be expected from a group of men such as composed 
the Board, a set of men who were solely interested in standing from 
under when there was any danger of friction, displaying a bovine 
and canine appetite for credit and praise, while eager only to 'stand 
in' with the 'big men' whom they know as the masters of American 
finance and banking?" 

The complete disillusionment of H. Parker Willis with the 
Federal Reserve System, for which he was partly responsible, 
demonstrates an awareness of the international influences at work 
on the Board of Governors, but he eould not name or attack those 

Chapter Twelve 

R. G. Hawtrey, the English economist, said, in the March 1926 
American Economic Review: 

_ "When external investment outstrips the supply of general 
savings the investment market must carry the excess with money bor- 
rowed from the banks. A remedy is control of credit by a rise in bank 

The Federal Reserve Board applied this control of credit, but 
not in 1926, nor as a remedial measure. It was not applied until 1929, 
and then the rate was raised as a punitive measure, to freeze out every- 
body but the big trusts. 

Professor Cassel, in the Quarterly Journal of Economies, August 
1928, wrote that: 

"The fact that a central bank fails to raise its bank rate in 

— 96 — 

accordance with, the actual situation of the capital market very much 
increases the strength of the cyclical movement of trade, with all its 
pernicious effects on social economy. A rational regulation of the 
bank rate lies in our ha'nds, and may he accomplished only if we 
perceive its importance and decide to go in for such a policy. "With 
a bank rate regulated oh these lines the conditions for the develop- 
ment of trade cycles would be radically altered, and indeed, our 
familiar trade cycles would be a thing of the past." 

This is the most authoritative statement yet made on the fact 
that our business depressions are artificially made. The occurrence of 
.the Panic of 1907, the Agricultural Depression of 1920, and the Great 
Depression of 1929, all three in good crop years and in periods of 
high national prosperity, should indicate a nigger in the woodpile. 
Lord Mayard Keynes pointed out that most theories of the business 
cycle failed to relate their analysis adequately to the money mech- 
anism. Any survey or study of a depression which failed to list such 
factors as gold movements and pressures on foreign exchange would 
be worthless, yet no American economists have ever done this. 

The League of Nations had achieved its goal of getting the 
nations of Europe back on the gold standard by 1928, but three- 
fourths of the world's gold was in France and ithe United States. The 
problem was how to get that gold to countries which needed it as 
a' basis for money and credit. The answer was the Federal Reserve 

Following the secret meeting of the Federal Reserve Board and 
the beads of the foreign central banks in 1927, the Federal Reserve 
Banks in a few months doubled their holdings of Government se- 
curities and acceptances, which resulted in the exportation of five 
hundred million dollars in gold in that year. The System's cheap 
money rate and purchases of Government securities on the open 
market forced the rates of call money down on the Stock Exchange, 
and forced gold out of the country. Foreigners also took this op- 
portunity to purchase heavily of Government securities because of 
the low call money rate. 

On February 6, 1929, Mr. Montagu Norman, Governor of the 
Bank of England, came to "Washington and had a conference with 
Andrew Mellon, Secretary of the Treasury. Immediately after that 
mysterious visit, the Federal Reserve Board abruptly changed its 
policy and pursued a high discount rate policy, abandoning the cheap 
money policy which it had inaugurated in 1927 after Mr. Norman's 
other visit. The stock market crash and the deflation of the American 
people's financial structure was scheduled to take place in March. 
To get the ball rolling, Paul Warburg gave the official warning to 
the traders to get out of the market. In his annual report to the 
stockholders of his International Acceptance Bank, in March 1929, 
Mr. Warburg said: 

— 97 — 

"If the orgies of unrestained speculation are permitted to 
spread, the ultimate collapse is certain not only to affect the specula- 
tors themselves, hut to hring about a general depression involving 
the entire country." 

During three years of "unrestrained speculation", Mr. "War 
burg had not seen fit to make any remarks about the condition of the 
Stock Exchange. A friendly organ, the New York Times, not only 
gave the report two columns- on its editorial page, but editorially com- 
mented on the wisdom and profundity of Mr. "Warburg's observations. 
Mr. Warburg's concern was genuine, for the stock market bubble 
had gone much farther /than it had been intended to go, and the 
bankers feared the consequences if the people realized what had been 
done to them. When his report in the New York Times started a sud- 
den wave of selling on the Exchange, the hankers grew panicky, 
and it was decided to ease the market somewhat: Accordingly, "War- 
burg's National City Bank rushed twenty-five million dollars in 
cash to the call money market, and postponed the day of the crash. 

The Federal Reserve Board had already warned the stockholders 
of the Federal Reserve Banks to get out of the Market, on February 
6, 1929, but it had not bojthered to say anything to the rest of the 
people. Nobody knew what was going on except the "Wall Street 
bankers who were running the show. Gold movements, which would 
haVe given the situation away, were carried on with almost complete 
secrecy, and official reports of such movements were completely un- 
reliable. The Quarterly Journal of Economics noted that: 

"The question has been raised, not only .in this country, hut in 
several European countries, as to whether customs statistics record 
w;th accuracy the movements of the precious metals, and, when 
investigation has been made, confidence in such figures has been 
weakened rather than strengthened. Any movement between France 
and England, for instance, should be recorded in each country, but 
such comparison shows an average yearly discrepancy of fifty mil- 
lion francs for France and eighty-five million francs for England. 
These enormous discrepancies are not accounted for." 

The Right Honorable Reginald McKenna' stated that : 

"Study of the relations between changes in gold stock and 
movement in price levels shows what should be very obvious, but is 
by no means recognized, that the gold standard is in no sense 
automatic in operation. The gold standard can be, and is, usefully 
managed and controlled for the benefit of a' small group of inter- 
national traders." 

In August 1929, the Federal Reserve Board raised the rate to 
6 percent. The Bank of England in the next month raised] its rate 
from 5 1-2 percent to 6 1-2 percent. Dr. Friday in the September, 1929, 
issue of Review of Reviews, can find no reason for the Board's 

— 98 — 

"The Federal Eeserve statement for August 7, 1929, shows that 
signs of inadequacy for autumn requirements do not exist. Gold re- 
sources are considerably more than the previous year, and gold con- 
tinues to move in, to the financial embarrassment of Germany and 
England. The reasons for the Board's action must be sought else- 
where. The public has been given only the hint that 'The; problem 
has presented difficulties because of certain peculiar conditions.' 
Every reason which Governor Toung advanced for lowering the 
bank rate last year exists now. Increasing the rate means that not 
only is there danger of drawing gold from abroad, but imports 
of the yellow metal have been in progress for the last four months. 
To do anything to' accentuate this is to take the responsibility for 
bringing on a world-wide credit deflation." 

Thus we find that not only was the Federal Eeserve System 
responsible for the First World "War, which it made possible by en- 
abling the United States to finance the Allies, but its policies brought 
on the world-wide depression of 1929-31. Governor Adolph 0. Miller 
stated at the Senate Investigation of the Federal Eeserve Board in 
1931 that: 

"If we had had no Federal Keserve System, I do not think we 
would have had as bad a speculative situation as we had, to begin 

Carter Glass replied, "You have made it clear that the Federal 
Eeserve Board provided a terrifie credit expansion by these open 
market transactions." 

Emmanuel Goldenweiser said: "In 1928-29 the Federal Eeserve 
Board was engaged in an attempt to restrain the rapid increase in 
security loans and in stock market speculation. The continuity of 
this' policy of restraint, however, was interrupted by reductions in 
bill rates in the autumn of 1928 and the summer of 1929." 

Both J. P. Morgan and Eluhn, Loeb Co. had "preferred lists" 
of men to whom/they sent advance announcements of profitable 
stocks. The men on these preferred lists, were allowed, to purchase 
these stocks at cost, that is, anywhere from 2 to 15 points a' share 
less than they were sold to the public. The men on these lists were 
fellow bankers, prominent industrialists, powerful city politicians, 
national Committeemen of the Bepublieam and Democratic Parties, 
and rulers of foreign countries. The men on these lists were notified 
of the coming crash, and sold all but so-called gilt-edged stocks, Gen- 
eral Motors, Dupont, etc. The prices on these stocks also sank to 
record lows, but they came up soon afterwards. How the big bankers 
operated in 1929 is revealed by a Newsweek story on May 30, 1936, 
when a Eoosevelt appointee, Ealph W. Morrison, resigned from the 
Federal Eeserve Board: 

"The consensus of opinion is that the Federal Eeserve Board 
has lost an able man. He sold his Texas utilities stock to Insull for ten 

— 99 — 

million dollars, and in 1929 called a meeting and ordered Ms banks 
to close out all security loans by September 1. As a result, tbey 
rode through the depression with Hying colors." 

Amazingly enough, all of the big bankers rode through the depres- 
sion "with flying colors." The people who suffered were the workers 
and farmers who had invested their money in get-rich stocks, after 
the President of the United States, Calvin Coolidge, and the Secre- 
tary of the Treasury, Andrew Mellon, had persuaded them to do it. 

There had been some warnings of the approaching crash in 
England, which American newspapers never saw. The London Statist 
on May 25, 1929 said: 

"The banking authorities in the United States apparently want 
a business panic to curb speculation." 

The London Economist on May 11, 1929, said : 

"The events of the past year have seen the beginnings of a' new 
technique, which, if maintained and developed, may succeed in 
'rationing the speculator without injuring the trader.' " 

Governor Charles S. Hamlin quoted this statement at the Senate 
Hearings in 1931 and said, in corroboration of it : 

"Thait was the feeling of certain members of the Board, to re- 
move Federal Reserve credit from the speculator without injuring the 

Governor Hamiin did not bother to point out that the "specula- 
tors", he was out to break were the sehool-teaehers and small town 
merchants who had put their savings into the stock market, or that 
the "traders" he was trying to protect were (the big' Wall Street 
operators, Bernard Barueh and Paul Warburg. 

When the Federal Reserve Bank of New York raised its rate to 
6 percent on August 9, 1929, the market conditions began which cul- 
minated in the tremendous selling orders from October 24 into 
November, which wiped out a hundred and sixty billion dollars 
worth of security values. That was a -hundred and sixty billions 
which the American citizens had one month and did not have the 
next. Some idea of the calamity may be had if we remember that our 
enormous outlay of money and goods in the Second World War 
amounted to not much, more than two hundred billions of dollars, and 
a great deal of that remained as negotiable securities in the national 
debt The stock market crash is the greatest misfortune which the 
United States has ever suffered. 

The Academy of Political Science of Columbia University in its 
annual meeting on January 1930, held a post-mortem on the Crash 
of 1929. Vice-President Paul Warburg was to have presided, and 
-Director Ogden Mills was to have played an important part in the 
discussion. However, these two gentlemen did not show up ; Professor 
Oliver M. W. Sprague of Harvard University remarked of the crash: 

"We have here a beautiful laboratory case of the stock market's 

— 100 — 

dropping apparently from its own weight.-" It was pointed out (that 
there was no exhaustion of credit, as in 1893, nor any currency famine, 
as in the Panic of 1907, when clearing-house certificates were resorted 
to, nor a collapse of commodity prices, as in 1920. Nor were there 
any hank crashes. "What then, had caused the crash? The people had 
purchased stocks at high prices, and expected the prices to continue 
to rise. The prices had to come down, and they did. It was obvious 
to the economists and bankers gathered over their brandy and cigars 
at the Hotel Astor that the people were at fault. Certainly the people 
had made a mistake in buying over-priced securities, but they had 
been talked into it by every leading citizen from the President of the 
United States on down. Every magazine of national circulation, every 
big_ newspaper, and every prominent banker, economist, and 
politician, had joined in the big confidence game of getting people 
to buy those over-priced securities. "When the Federal Eeserve Bank 
of New York raised its rate to 6 percent, in August 1929, people 
began to get out of the market, and it turned into a panic which 
drove the prices of securities down far below their natural levels. 
As in previous panics, this enabled both "Wall Street and foreign 
operators in the know to pick up "blue-chip" and "gilt-edged" 
securities for a fraction of their real value. 

The Crash of 1929 also saw the formation of giant holding 
companies which picked up these cheap bonds and securities, such 
as the Marine Midland Corporation, the Lehman Corporation, and 
the Equity Corporation. In 1929 J. P. Morgan Company organized 
the giant food trust, Standard Brands. It was an unequalled op- 
portunity for trust operators to enlarge and consolidate their hold- 

Emmanuel Goldenweiser, director of research for the Federal 
Reserve System, said, in 1947 : 

"It is clear in retrospect that the Board should have ignored 
the speculative expansion and allowed it to collapse of its own 
weight." This admission of error eighteen years after the event was 
small comfort to- the people who lost their savings in the Crash. 

The Wall Street Crash of 1929 was the beginning of a world-wide 
credit deflation which lasted through 1932, and from which the 
Western democracies did not recover unjtil they begarrto rearm for 
the Second World War. During this depression the trust operators 
achieved further control by their backing of three international 
swindlers, the Van Sweringen brothers, Samuel Insull, and Ivar 
Kreuger. These men pyramided billions of dollars worth of securities 
up on each other to fantastic heights. The bankers who promoted them 
and floated their stock issues could have broken them at any time 
by calling loans of less than a million dollars, but they let these men 
go on until they had incorporated many industrial and financial 
properties into holding companies, which the banks then took over for 

— 101 — 

nothing. Insull piled up public utility holdings throughout the Mid- 
dle "West, which the banks got for a fraction of their worth. Ivar 
Kreuger was hacked by Lee Higginson Company, supposedly one 
of the nation's most reputable banking houses. The Saturday Even- 
ing Post called him "more than a financial titan", and the English 
EevieW Fortnightly said, in an article written December 1931, under 
the title, "A Chapter in Constructive Finance": "It is as a financial 
irrigator that Kreuger has become of such vital importance to 

"Financial irrigator", we may remember, was the title bestowed 
upon Jacob Sehiff by Newsweek Magazine, when it described how 
Sehiff had bought up American railroads with Rothschild's money. 

The New Republic remarked on January 25th, 1933, when it 
commented on the fact that Lee Higginson Company had handled 
Kreuger and Toll securities on the American market: 

"Three-quarters of a billion dollars was made away with. Who 
was able to dictate to the French police to keep secret the news of 
this extremely important suicide for some hours, during which some- 
body sold Kreuger securities in large amounts, thus getting out of the 
market before the debacle?" 

The Federal Reserve Board could have cheeked the enormous 
credit expansion of Insull and Kreuger by investigating the security 
on which their loans were being made, but the Governors never made 
any reference to the activites of these men. 

The modern bank, with the credit facilities it affords, gives an 
opportunity which had not previously existed for such operators aS 
Kreuger to make an appearance of abundant capital by the aid of 
borrowed capital. This enables the speculator to buy securities with 
securities. The only limit to the amount he can corner is the amount 
to which the banks will ba'ek him, and, if a speculator is being 
promoted by a reputable banking house, as Kreuger was promoted by 
Lee Higginson Company, the, only way he could be stopped would 
be by an investigation of his actual financial resources, which in 
Kreuger 's ease, proved to be nil. 

The leader of the American people during the Crash of 1929 
and' the subsequent depression was Herbert Hoover. After the first 
break of the market (the five billion dollars in security values which 
disappeared on October 24, 1929) President Hoover said: 

"The fundamental business of the country, that is, production 
and distribution of commodities, is on a sound and prosperous 
basis." His Secretary of the Treasury, Andrew Mellon, stated on 
December 25, 1929, that : 

"The Government's business is in sound condition." His own 
business, the Aluminum Company of America, apparently was not 
doing so well, for he reduced the wages of all employees by ten per 

— 102 — 

cent. This may not have been an index to the status-of the company's 
financial condition. Very likely, it was only an economy measure. 

Chapter Thirteen 

The Federal Reserve Bank' of New York dropped its rate from 
6 percent on November 1, 1929 to 1 1-2 percent on May 8, 1931. 
Evidently the big operators had bought all they waited. 

In 1930 Herbert Hoover appointed to the Federal Reserve Board 
an old friend from "World "War I days, Eugene Meyer, Jr., who had 
a long record of public service dating from 1915, when he went into 
partnership with Bernard Baruch in the Alaska-Juneau Gold Min- 
ing Company. Meyer had been a" Special Advisor to the "War In- 
dustries Board on Non-Ferrous Metals (gold, silver, etc.) ; Special 
Assistant to the Secretary of War on aircraft production; in 1917 
he was appointed to the National Committee on "War Savings, and was 
made Chairman of the War Finance Corporation from 1918-1926. He 
then was appointed chairman of the Federal Farm Loan Board from 
1927-29. Hoover put him on the Federal Reserve Board in 1930, and 
Franklin D. Roosevelt created the Reconstruction Finance Corpora- 
tion for him in 1932, and he headed the International Bank for Re- 
construction and Development in 1946. Meyer must have been a 
man of exceptional ability to hold so many important posts. However, 
there were some Senators who did not believe he should hold any 
Government office, because of -his family background as an inter- 
national gold dealer and his mysterious operations in billions of 
dollars of Government securities in the First "World War. Conse- 
quently, the Senate held Hearings to determine whether Meyer ought 
to be on the Federal Reserve Board. 

At these Hearings, Representative Louis T. MeFadden, Chair- 
man of the House Banking and Currency Committee, said : 

"Eugene Meyer, Jr. has had his own crowd with him in the 
government since he started in 1917. His War Finance Corporation 
personnel took over the Federal Farm Loan System, and almost 
immediately afterwards, the Kansas City Joint Stock Land Bank and 
the Ohio Joint Stock Land Bank failed. 

REPRESENTATIVE RALNET: Mr. Meyer, when he nominally 
resigned as head of the Federal Farm Loan Board, did not really 
cease his activities there. He left behind him an able body of wreckers. 
They are continuing his policies and consulting with him. Before 
his appointment, he was frequently in consultation with Assistant 
Secretary of the Treasury Dewey. Just before his appointment, the 
Chicago Joint Land Stock Bank, the Dallas Joint Stock Land Bank, 
the Kansas City Joint Land Stock Bank, and the Des Moines Land 
Bank were all functioning. Their bonds were selling at par. The then 

— 103 — 

farm loan commissioner had an understanding with Secretary Dewey 
that nothing would be done without the consent and approval of the 
Federal Farm Loan Board. A few days afterwards, United States. 
Marshals, with pistols strapped at their sides, and sometimes with 
drawn pistols, entered these five banks and demanded that the banks, 
be turned over to them. "Word went out all over the United States, 
through the newspapers, as to what had happened, and these banks- 
were ruined. This led to the breach with the old Federal Farm Loan 
Board, and to the resignation of three of its members, and the ap- 
pointment of Mr. Meyer to be head of that board. 

SENATOR CARET: Who authorized the marshals to take over- 
the banks? 

REP. RAINET: Assistant Secretary of the Treasury Dewey. 
That started the ruin of all these rural banks, and the Gianninis 
bought them up in great numbers." 

World's Work of April, 1931, says: 

"Ninety per cent of all the bank failures occurred in towns of 
less than ten thousand population. Our rural communities have had 
too many banks, which were ina'dequately capitalized to withstand 
the strain of postwar adjustments. We need fewer banks and more 
regulations. The Federal Reserve System itself rests upon bedrock, 
but in the field of local credit we need real banking brains. ' ' 

Rural banks could scarcely be expected to withstand such com- 
mitments as the international dealings of Wall Street. 

World's Work of February 1931, said: 

"When the World War began for us in 1917, Mr. Eugene Meyer, 
Jr. was among the first to be ealled to Washington. In April, 1918, 
President Wilson named him Director of the War Finance Corpora- 
tion. This corporation loaned out 700 million dollars to banking and 
financial institutions." 

The Senate Hearings on Eugene Mever, Jr. continued: 

REPRESENTATIVE MCFADDEN : ' ' Lazard Freres, the inter- 
national banking house of New York and Paris, was a' Meyer family 
banking house. It frequently figures in imports and exports of gold, 
and one of the important functions of the Federal Reserve System 
has to do with gold movements in the maintenance -of its own opera- 
tions. In looking over the minutes of the hearing we had last Thurs- 
day, Senator Fletcher had asked Mr. Meyer, 'Have you any con- 
nections with international banking?' Mr. M!eyer had answered, 'Me? 
Not personally.' This last question and answer do not appear in the 
Stenographic transcript. Sena-tor Fletcher remembers asking the 
question, and the answer. It is an odd omission. 

SENATOR BROOKS ART: I understand that Mr. Meyer look- 
ed it over for corrections. 

REP. MCFADDEN : Mr. Meyer is a brother-in-law of George 
Blumenthal, a member of the firm of J. P. Morgan Company, which 

— 104 — 

represents the Rothschild interests. He also is a liason officer between 
the French Government and J. P. Morgan. Edmund Piatt, who had 
eight years' to go on a term of ten years as Governor of the Federal 
Reserve Board, resigned to make room for Mr. Meyer. Piatt was 
given a Vice-Presidency of Marine Midland Corporation by Meyer's 
brother-in-law Alfred A. Cook. Eugene Meyer, Jr. as head of the War 
Finance Corporation, enga'ged in the placing of two billion dollars 
in Government securities, placed many of those orders first with 
the banking house now located at 14 Wall Street in the name of 
Eugene Meyer, Jr. Mr. Meyer is now a large stockholder' in the Allied 
Chemical Corporation. I call your attention .to House Report No. 
1635, 68th Congress, 2nd Session, which reveals that at least twenty- 
four million dollars in bonds were duplicated. Ten billion dollars 
worth of bonds were surreptitiously destroyed. Our committee on 
Banking and Currency found the records of the War Finance Cor- 
poration Under Eugene Meyer, Jr. extremely faulty. While the books 
were being brought before our committee by the people who were 
custodians of them and .taken back to the Treasury at night, the 
committee discovered that alterations were being made in the per- 
manent records." 

This record of public service did not prevent Eugene Meyer, 
Jr. from continuing to serve the American people on the Federal Re- 
serve Board, as Chairman of the Reconstruction Finance Corporation, 
and as head of the International Bank. 

President Rand, of the Marine Midland Corporation, questioned 
about his sudden desire for the services of Edmund Piatt, said : 

"We pay Mr. Piatt $22,000 a year, and we took his secretary 
over, of course." This meant another five thousand a year. 

Senator Brookhart showed that Eugene Meyer, Jr. administered 
the Federal Farm Loan Board against the interests of the American 
farmer, saying: 

"Mr. Meyer never loaned more than 180 million dollars of the 
capital stock of 500 million dollars of the farm loan board, so that 
in aiding the farmers he was not even able to use half of the capital. 

MR. METER : Senator Kenyon wrote me a letter which showed 
that I cooperated with great advantage to the people of Iowa. 

SENATOR BROOKHART: You went out and took the opposite 
•side from the Wall Street crowd. They always send somebody out 
to do that. I have not yet discovered in your statements much in- 
terest in making loans to the farmers at large, or any real effort to 
help their condition. In your two years as head of the Federal farm 
loan board you made very few loans compared to your capital. You 
loaned only one-eighth of the demand, according to your own state- 

Despite the damning evidence uncovered at these Senate Hear- 
ings, Eugene Meyer, Jr. remained on the Federal Reserve Board. 

— 105 — 

In 1932, the American people elected Franklin D. Roosevelt 
President of the United States. This -was hailed as the freeing of the 
American people from the evil influence which had brought on the 
Great Depression, the ending of Wall Street domination, and the 
disappearance of the banker from Washington. 

One of the men Roosevelt brought down from New York with 
him as a Special Advisor to the Treasury was Earl Bailie o.f J. & 
W. Seligman Company, who had become 'notorious as the man who 
handed the $415,000 bribe to Juan Leguia, son of the President of 
Peru, in order to get the President to accept a loan from J. & W. 
Seligman Company. There was a great deal of criticism of this ap- 
pointment, and Mr. Roosevelt, in keeping with his new role as 
defender of the people, sent Earl Bailie back to bribing in New Tork. 

Franklin D. Roosevelt himself was an international banker of 
ill repute, having floated large issues of foreign bonds in this country 
in the 1920s. These bonds defaulted, and our citizens lost millions of 
dollars, but they still wanted Mr. Roosevelt as President. The New 
Tork Directory of Directors lists Mr. Roosevelt as President and 
Director of United European Investors, Ltd., in 1923 and 1924, which 
floated many millions of German marks in this country, all of which 
defaulted. Poor's Directory of Directors lists him as a' Director of The 
International Germanic Trust Company in 1928. Franklin D. 
Roosevelt was also an advisor to the Federal International Banking 
Corporation, an Anglo-American outfit dealing in foreign securities 
in the United States. 

Roosevelt's law firm of Roosevelt and O'Connor during the 1920s 
represented many international banking corporations. His law partner, 
Basil O'Connor, was a Director in the Following corporations: 

Cuban-American Manganese Corporation, Venezuela-Mexican 
Oil Corporation, Honduras Timber Corporation, Federal International 
Corporation, West Indies Sugar Corporation, American Reserve In- 
surance Corporation, Warm Springs Foundation. He was Director 
in other corporations, and later head of the American Red Cross. 

When Franklin D. Roosevelt .took office as President of the 
United States, he appointed as Director of the Budget James Paul 
Warburg, son of Paul Warburg, and Vice President of the Inter- 
nation Acceptance Bank and other corporations. Roosevelt appointed 
as Secretary of the Treasury W. H. Woodin, one of the biggest in- 
dustrialists in the country, Director of the American Car and Foundry 
Company and numerous other locomotive works, Remington Arms, 
The Cuba Company, Consolidated Cuba Railroads, and other big 
corporations. Woodin was later replaced by Henry Morgenthau, Jr., 
son of the Harlem real estate operator who had helped put Woodrow 
Wilson in the White House. With sueh a crew as this, Roosevelt's 
promises of radical social changes showed little likelihood of ful- 
fillment. One of the first things he did was to declare a bankers' 

— 106 — 

moratorium, to help the bankers get their records in order. 

"World's "Work says: _ , r T . 

'•' Congress has left Charles G. Dawes and Eugene Meyer, Jr. tree 
to appraise, ly their own methods, the security which prospective 
borrowers of the two billion dollar capital may offer. _ _ 

Roosevelt also set up the Securities Exchange Commission, to 
see to it that no new faces got into the Wall Street gang, which caused 
the following colloquy in Congress : _ 

BEPEESENTATIVE WOLCOTT: At hearings before this com- 
mittee in 1933, the economists showed us charts which proved beyond 
all doubt that the dollar value of commodities followed the price level 
of gold. It did not, did it? 


REPRESENTATIVE GIFFORD : Wasn't Joe Kennedy put 
in by President Roosevelt because he was sympathetic with big busi- 

H6SS ? 

LEON HENDERSON: I think so. 
Paul Einzig pointed out in 1935 that : 

"President Roosevelt was the first to declare himself openly in 
favor of a. monetary policy aiming at a deliberately engineered rise 
in prices. In a negative sense his policy was successful. Between 
and 1935 he succeeded in reducing private indebtedness, but this was 
done at the cost of increasing public indebtedness." In other words, 
he eased the burden of debts off of the rich onto the poor, since the 
rich are few and the poor many. 

On December 13, 1932, Louis T. McFadden, Chairman of the 
House Banking and Currency Committee, made a motion in the 
House of Representatives proposing impeachment of President Her- 
bert Hoover. Only five men stood with him on .this, and the resolu- 
tion was thrown out. The Republican majority lea'der of the House 
said" Louis T. McPadden is now politically dead." 

McPadden came back on May 23, 1933, to present on the floor 
of the House Articles of Impreaehment against the Secretary of the 
Treasury, two Assistant Secretaries of the Treasury, the Federal 
Reserve Board of Governors, and the officers and directors of the 
Federal Reserve Banks for guilt in collusion in causing the Great 
Depression of 1929-31. The Articles of Impeachment were overwhelm- 
ingly defeated, and in the next Congressional elections, McFadden 
was defeated by thousands of dollars poured into his home district 
of Canton, Pennsylvania. His fellow-Congressmen started a whisper- 
ing campaign that McFadden was losing his mind, and certainly any 
Congressman must have lost his mind to stand up on the floor of 
Congress and speak against the international operators. 

Senator Robert L. Owen, testifying before the House Committee 
on Banking and Currency in 1938, said: _ 

"I wrote into the, bill which was introduced by me m the Senate 

— 107 — 

on June 26, 1913, a provision that the powers of the System should 
be employed to promote a stahle price level, which meant a dollar of 
stable purchasing, debt-paying power. It was stricken out. The power- 
ful money interests got control of the Federal Reserve Board through 
Mr. Paul Warburg; Mr. Albert Strauss, and Mr. Adolph C. Miller, 
and they were able to have that secret meeting of May 18, 1920, and 
bring about a contraction of credit so violent it threw five million 
people out. of employment. In 1920 that Reserve Board deliberately 
caused the Panic of 1921. The same people, unrestrained in the stock 
market, expanding credit to a great excess between 1926 .and 1929, 
raised .the price of stocks to a fantastic point where they could not 
possibly earn dividends, and when the people realized this, they tried 
to get out, resulting in the Crash of October 24, 1929." 

Senator Owen did not go into the question of whether the 
Federal Reserve Board could be held responsible to the public. Actual- 
ly, they cannot. They are public officials who are appointed by the 
President, but their salaries are paid by the private stockholders of 
the Federal Reserve Banks. Obviously, their loyalty is to .the people 
Vvho pay their salaries, and so their history of criminal conspiracies 
against the American people since 1913 is no different from the his- 
story of Imperial Chemicals, I. G. Farben, or any other big corpora- 
tion acting against the interests of the public. 

Governor W .P. G. Harding of the Federal Reserve Board testi- 
fied in 1921 that: 

"The Federal Reserve Bank is an institution owned by the stock- 
holding member banks. The Government has not a dollar's worth of 
stock in it." 

However, the Government does give the Federal Reserve System 
the use of its billions of dollars of eredit, and this gives the Federal 
Reserve its characteristic of a central bank, the power to issue cur- 
rency on the Government's eredit. We do not have Federal Govern- 
ment notes or gold certificates as currency. We have Federal Reserve 
Bank notes, issued by the Federal Reserve Banks, and every dollar 
they print is a dollar in their packet. 

"W. Randolph Burgess, of the Federal Reserve Bank of New York 
stated, before the Academy of Political Science in 1930 that: 

''In its major principles of operation the Federal Reserve Sys- 
tem is no different from other banks of issue, such as the Bank of 
England, the Bank of France, or the Reichsbank." 

All of these central banks have the power of issuing currency 
in their respective countries. Thus, the people do not own their own 
money m Europe, nj>r do they own it here. It is privately printed 
for private profit. Th^ people have no sovereigntv over their, money 
and it has developed that they have no sovereignty 'over other major 
political issues such as foreign policy. 

As a central bank of issue, the Federal Reserve System had 

— 108 — 

behind it all the enormous wealth of the American people. "When it 
began operations in 1913, it created a serious threat! to the central 
banks of the impoverished countries of Europe. Because it repre- 
sented this great wealth, it attracted far more gold than was desir- 
able in the 1920s, and it was apparent that soon all of the world's 
gold would be piled up in this country. This would make the gold 
standard a' joke in Europe, because they would have no gold oyer 
there to back their issue of money and credit. It was the Federal Re- 
serve's avowed aim in 1927, after the secret meeting with the heads 
of the foreign central banks, to get large quantities of that gold sent 
back to Europe, and its methods of doing so, the low interest rate 
and heavy purchases of Government securities, which created vast 
sums of new money, intensified the stock market speculation and 
made the stock market crash and resultant depression so great a 
national disaster. 

Since the Federal Reserve System was guilty of causing this 
disaster, and knew that it was guilty, we might suppose that they 
would have tried to alleviate it by some method. However, through the 
dark years of 1931 and 1932, the Governors of the Federal Reserve 
Board saw the plight of the American people steadily worsening, and 
did nothing to help them. This was more criminal than the original 
plotting of the Depression. Anyone who lived through those years in 
this country remembers the widespread unemployment, the misery, 
and the hunger of our people. At any time during those years the 
Federal Reserve Board could have acted to relieve this situation. 

The problem was to get some money back into circulation. So 
mueh of the money normally used to pay rent and food bills had 
been sucked into "Wall Street that there was no money to carry on 
the business of living. In many areas, people printed their own 
money on wood and paper, for use in their communities, and this 
money was good, since it represented obligations to each other which 
people fulfilled. 

The Federal Reserve System was a central bank of issue. It had 
the power to, and did, when it suited its owners, issue millions of 
dollars of money. Why did it not do so in 1931 and 1932? The Wall 
Street bankers were through with Mr. Herbert Hoover, and they 
wanted Fr ankli n TV Roosevelt to come in on a wave of glory as the 
saviour of the nation. Therefore, the American people had to starve 
and suffer until March of 1933, when the "White Knight came riding 
in with his crew of Wall Street bribers and put some money into cir- 
culation. That was all there was to it. As soon as Mr. Roosevelt took 
office, the Federal Reserve began to buy Government securities at 
the rate of ten million dollars a week for ten weeks, and created 
a hundred million dollars in new money, which alleviated the critical 
famine of money and credit, and the factories started hiring people 

— 109 — 

Besides Roosevelt's manipulations of the price of silver for the 
benefit of the English family Sassoon, which brought widespread 
misery in China and India, he is famous for his gold operations with 
his Secretary of the Treasury, Henry Morgenthau, Jr. The Gold 
Trading Act which he rammed through Congress allowed the Secre- 
tary of the Treasury to purchase gold anywhere without any notifica- 
tion or authorization from any government body. 

Section 8 of the Federal Reserve (Gold) Act of 1934 provided 
that : 

'With the approval of the President, the Secretary of the Trea- 
sury may purchase gold in any amount at home or abroad, with any 
direct obligations, coin or currency of the United States authorized 
by law." 

Roosevelt's international gold dealings were put to the test 
of the Supreme Court. This body, it will be remembered, decided in 
faVor of E. H. Harriman and Otto Kahn in 1908, when it ruled that 
these men did not have to show the records of their stock manipula- 
tions to the Interstate Commerce Commissions. This was in connection 
with Kuhn, Loeb's seizure of the Union Pacific Railroad. The Supreme 
Court has consistently acted in the interests of the money power, and 
Mr. Justice Owen Roberts is a Director of the Morgan outfit, American 
Telephone and Telegraph Corporation. Until 1919, only 33 statutes 
of the United States had been held unconstitutional, but 223 state 
statutes were voided by the Supreme Court, which has acted towards . 
centralization of power for the past fifty years. 

How Roosevelt and Morgenthau plunged into international gold 
manipulations is told by Alsop and Kjntner, "Washington columnists, 
in the Saturday Evening Post of April 15, 1939 : 

"The first thing Morgenthau did was: to fire Dean Aeheson of 
J. P. Morgan Company, then Undersecretary of the Treasury, be- 
cause Aeheson disagreed with some of his policies. By the Gold Re- 
serve Act of 1934, Roosevelt and Morgenthau made paper profit of 
two billion, eight hundred million dollars, by valuing all the gold 
at $35 instead of $20.67 an ounce. Still under authority of the Gold 
Reserve Act, they used this- fund in buying and selling gold to mana'ge 
the dollar price on the world exchange. Thus they gained control of 
money. (The brains behind this was Bernard Baruch.) Morgenthau 
had been a farmer, but showed acute perception of money operations. 
H. Merle Cochran and Dr. Herbert Peis are two men .through whom 
the Treasury keeps its finger on the pulse of money throughout the 
world. Once a' month, Cochran goes to Bern, Switzerland, to hobnob 
with the heads of and hear the news from the European Central 
Banks at the meeting of the Bank for International Settlements, 
which is called "their club". Pearl Buck's former husband, J. Lessing 
Buck, who is a professor in.a Chinese-American university, thus con- 
ceals his real purpose in China', his work for Morgenthau. The Chinese 

— 110 — 

and American Treasuries co-operate closely, and a direct liason is 
necessary. Butteworth does a job like Cochran in London. Cochran 
officially is merely a secretary to the Embassy in Paris. Actually, 
he is the " number-one dollar man of Europe who secretly played 
America's hand in the great money-game. In this absorbing inter- 
national drama, you' may see how world politics really work. The actors 
are the leading men of the United States, France, and England, their 
principal financial officials, their most eminent bankers, and finan- 
ciers. T. K. Bewley does a like job for England at the British Em- 
bassy in Washington, and Barry Dexter 'White, special adviser on 
silver to the United States Treasury, cooperated closely with him. 
The President himself calls the transfer of the financial capital 
from New York to "Washington one of the two great achievements of 
the New Deal." 

Roosevelt's gold manipulations came before the Supreme Court 
in 1934 when Litigant P. E. Nortz sought damages from the United 
States, on the grounds that he had lost $65,000 on $106,000 of gold 
certificates which he redeemed at the United States Treasury after 
Roosevelt had changed the value of gold from $20.67 to $35 an 
ounce. The Supreme Court was placed in the difficult position of 
approving Roosevelt's action without betraying its sympathies for 
him. It had acted increasingly on behalf of the executive branch of 
the Government, as do all appointive officials, but it had to proceed 
cautiously in this instance. Newsweek Magazine of Peburay 9, 1935, 
gays : 

"The Supreme Court still debates on the gold clauses in the 
Banking Act of 1935. Morgenthau was preparing legislation to rush 
through Congress should the decision be against the administration. 
The Chief Clerk posted a notice that they should not rea'eh a decision 
by the following Monday. Never before in its history had the Supreme 
Court issued an announcement of its future action. ' ' 

On February 16, 1935, Newsweek observed: 

"For tbe second time, the court posted an announcement that 
no decision would be reached, thus breaking precedent two weeks in 
a row. Two days before, the Supreme Court justices had dined with 
Roosevelt at the "White House." 

This dinner with Roosevelt during the discussion of highly con- 
troversial legislation of course had nothing to do with the Court's 
final decision. 

Newsweek, February 23, 1935, said: 

"In a 5 — & decision, the Supreme Court upheld Roosevelt, but 
partially rebuked Congress. It supported Congress' power to regulate 
the currency, and change the gold content of the dollar, and in- 
validate gold clauses in non-government bonds, but held that Con- 
gress was without power to reduce debt by repudiation of contract, 
and judged cancellation of gold clauses in government bonds illegal. 

— Ill — 

Reviewing Congress' gold laws, Chief Justice Hughes declared, '¥e 
are not concerned with their wisdom. The question before the Court 
is one of power, not of policy.' Justice MeReynolds, speaking for the 
minority in a loud and bitter tone, said : 

'The Constitution, as we have known it, is gone. This is Nero 
at his worst. It seems impossible to overestimate what has been- done 
here today. The guarantees which men and women heretofore have 
looked to to protect their interests have all been swept away. There 
are some responsibilities attaching to a man on this bench, to reveal 
to the bar, in all its nakedness, just what has been done. "We are con- 
fronted with a condition in which the dollar may be reduced to 50c 
today, 30c tomorrow, 10c the nest day. Loss of reputation for hon- 
orable dealing will leave us ruined. The impending legal and' moral 
chaos is appalling.' " 

It took Justice MeReynolds twenty-one" years to find out that 
the Constitution was gone. The American people do not know it yet. 
MeReynolds'' speech, to have the element of timeliness, should have 
been uttered on December 23, 1913, when Woodrow Wilson signed 
the Federal Reserve Act. This Act took away from Congress the 
right of monetary issue and gave it to private bankers who owned the 
Federal Reserve System. 

"The administration had already guessed a decision was to 
come. Secretary Morgenthau was lunching with Roosevelt at the 
White House. Mrs. Morgenthau and Mrs. Dorn, wife of the Secretary 
of War, were in the Court before any of the Justices' wives." 

Newsweek further remarked: 

"News of the Supreme Court decision sent prices of securities 
and_ commodities rocketing. Foreign currencies spurted upwards. 
Jubilant over the decision, Roosevelt held back proposed National 
Recovery Act legislation for two days, so the Administration's victory 
Would have no competition on the front pages. Litigant Nortz who 
had lost $65,000 on gold certificates, was denied damages on grounds 
he had not shown loss of buying power." 

Chapter Fourteen 

The Federal Reserve Board during Roosevelt's administration 
underwent a complete change of .personnel. Charles S. Ha mlin , oldest 
Governor of the Board, having been appointed in 1914, and the only 
one of the original seven members still associated with it, stepped 
down in 1936 to the position of Special Counsel to the Board. 

Another familiar face at the Board of Governors was Emmanuel 
Goldenweiser, Director of Research for the Federal Reserve Board 
since 1919. An immigrant from Kiev, Russia, Goldenweiser arrived 
in this country in 1906. He promptly entered public service, being 

— 112 — 

employed in the United States Immigration Service from 1906 to 
1910. From 1910 .to 1914, he was employed by the Department of 
Agriculture, and from 1914 to 1919 by the United States Census. In 
1919, he "came to work for the Federal Reserve Board. As Director 
of Research for the Board for thirty years, he has issued many 
authoritative statements -of policy, and undoubtedly kn'ows more 
about the workings of the Federal Reserve System from the inside than 
any other man. 

A Roosevelt appointee to the Board in 1936 was Joseph A. 
Broderiek, an old friend from New York. Broderick had been as- 
sociated with the Federal Reserve System in 1919, and from 1929 
to 1934 he was State Superintendent of Banks for the State of New 
York. While holding this office, he was brought to trial for criminal 
neglect of duty in connection with the failure of the Bank of the 
United States. The Bank of the United States had invested heavily 
in New York real estate, particularly around Central Park "West, 
and had seriously over-extended itself. As Superintendent of Banks^ 
Broderick was aware of the condition of the Bank of the United 
States, but for reasons not advanced at his trial, he did nothing about 
it The Bank of the United States closed its doors, and depositors lost 
millions of dollars. Broderiek seemed likely to get a stiff jail sentence 
for his criminal neglect of duty, but Governor Franklin D. Roose- 
velt came to testify at his trial. So brilliantly did Roosevelt plead 
for him that Broderick not only did not go to jail, but went back, 
to his old job as State Superintendent of Banks. In 1936 Roosevelt 
appointed Broderick Governor .of the Federal Reserve Board, and 
on 1937, Broderick resigned to aeeept .the position of President of the 
East River Savings Bank, one of the oldest and biggest banks in 
New York City. 

J. F. T. O'Connor, Comptroller of the Currency, resigned in 1933 
to go to Los Angeles as a member of the- McAdoo law firm.' MeAdoo 
Secretary of the Treasury in the First World "War, was now the 
lawyer for A .P. Giannini's giant bank-holding company, the Trans- 
America Corporation and the Bank of America. 0 'Connor was soon 
afterwards appointed a District Judge of California. 

Other members of the Board of Governors who went on to better 
things were John McEee, who served from 1937 to 1946, when he was 
made President of the Continental Bank and Trust Company, and 
Chester C. Davis, who served on the Board from 1936 to 1941. Davis 
had been in the Agriculture Department under Henry Wallace then 
went to the Commodity Credit Corporation, from there to the Export- 
Import Bank, and then to the Federal Reserve Board. He resigned 
from the Board to become President of the Federal Reserve Bank of 
St. Louis. 

The Federal Reserve Board, insofar as the public was concerned, 
during the Roosevelt adniinistration was Marriner Eccles, an emula- 

— 113 — 

tor and admirer of the Chief. Eeeles was a Utah hanker, President of 
the First Securities Corporation, a family investment trust consist- 
ing of a number of hanks which Eeeles had picked up cheap dur- 
ing the Agricultural Depression of 1920-21. Bceles also was a director 
of such corporations as Pet Milk Company, Mountain States Imple- 
ment Company, and Amalgamated Sugar. As a hig hanker, Eeeles 
fitted in well with the group of powerful men who were operating 

There was some discussion in Congress as to whether Eeeles ought 
to be on the Federal Reserve Board at the same time he had all of 
these hanks in Utah, but he testified that he had very little to do 
with the First Securities Corporation besides being President of it, 
and so he was confirmed as Chairman of the Board. 

Eugene Meyer, Jr. now resigned from the Board to spend more 
of his time lending the two billion dollar capital of the Reconstruction 
Finance Corporation, and determining the value of collateral by his 
own methods. 

The Banking Act of 1935, which greatly increased Roosevelt's 
power over the nation's finances, was an integral part of the legisla- 
tion by which he proposed to extend his absolute reign in the United 
States. It was not fought by the people as was the National Recovery 
Act, because it wa's not so naked an infringement of their liberties. 
It was, however, an important measure. First of all, it extended the 
terms of office of the Federal Reserve Board of Governors to fourteen 
years, or, three and a half times the length of a Presidential term. 
This meant that a President assuming office who might be hostile 
to the Board could not by any means appoint a majority to it who 
would be favorable .to him. Thus, a monetary policy inaugurated be- 
fore a President came into the "White House would go on regardless 
of his Wishes. 

As Congressman "Wright Patman has pointed out, the Amend- 
ments of 1935- stripped all power frbm the Officers and Directors of 
the 12 Federal Reserve Banks. He has rema'rked that now the Officers 
and Directors of a Federal Reserve Bank do not have any more power 
over our monetary system than the janitor of a building, because those 
1935 Amendments placed all of the powers in the Board of Governors 
and in the Open Market Committees. 

Congressman Patman 's objections to the Open Market Committee 
make the point that that Committee should be composed of members 
of the Board of Governors' only, and should not have on it Representa- 
tives of the private banks as at present. This excessive and dangerous 
centralization of monetary powers, might have been necessary 
to manage the extraordinary and astronomical expansion of United 
States public credit during the Second World War, is a real threat 
to peacetime economy, as the disastrous postwar inflation testifies. 
The question is, Who could see far enough ahead in 1935 to centralize 

— 114— 

those banking powers for such an expansion of credit in the 1940s? 
Henry Morgenthau, Harry Dexter White, Herbert Feis, and Jacob 
Viner were preparing for war finance when those Amendments were 
drafted, and war finance on a scale never before dreamed of. 

The Banking Act of 1935 also repealed the clause of the Glass- 
Steagall Banking Act of 1933, which ha'd provided that a banking 
house could not be on the Stock Exchange and also be involved in in- 
vestment banking. This clause had been stuck in the Banking Act 
of 1933 as a sop to the people who were complaining that the h ank ers 
Were responsible for the depression. The clause was a good one, since 
it prevented a banking house from lending money to a corporation 
whieh it owned. Still it is to be remembered that this clause covered 
up some other provisions in that Act, such as the creation of the 
Federal Deposit Insurance Corporation, providing insurance money 
to the amount of 150 million dollars, to guarantee fifteen billion 
dollars worth of deposits. This increased the power of the big bankers 
over small banks and gave them another excuse to investigate them. 
The Banking Act of 1933 also legislated that all earnings of the 
Federal Reserve Banks must by' law go to the banks' themselves. At 
last the provision in the Act that the Government share in the pro- 
fits was gotten rid of. It had never been observed, and the increase 
in the assets of the Federal Reserve Banks from 143 million dollars 
in 1913 to 45 billion dollars in 1949 went entirely to the private stock- 
holders of the banks. Thus, the one constructive provision of the 
Banking Act of 1933 was repealed in 1935, and also the Federal Re- 
serve Banks were now permitted to loan direetly to industry, thus 
competing with the member banks, who would not hope to compete 
with them in arranging large loans. 

"When the provision that banks could not be involved in invest- 
ment banking and operate on the Stock Exchange was repealed in 
1935, Garter Glass, originator of that provision, was asked by re- 
porters : 

"Does that mean that J. P. Morgan can go back into investment 
banking? 55 

"Well, why not? 55 replied Senator Glass. "There has been an 
outcry all over the country that the hanks will not make loans. Now 
the Morgans can go back to underwriting. 5 ' 

Because that provision was unfavorable to them, the bankers had 
simply clamped down on making loans until it was repealed. Congress 
eould not get away with passing any legislation which restricted them. 

Newsweek of March 14, 1936, noted that: 

"The Federal Reserve Board fired nine chairmen of Reserve 
Banks, explaining that "it intended to make the chairmanships of 
the Reserve Banks largely a part-time job on an honorary basis. 5 This 
was another instance of the gradual tightening up and centralization 
of control in the Federal Reserve System. The regional district system 

— 115 — 

had never been an important factor in the a'dministration of monetary- 
policy, and the Board was now cutting down on all its officials out- 
side of "Washington. 

The Federal Reserve Board itself had lost its independence in 
1920, when both Warburg and Strauss had resigned. Warburg con- 
tinued to dominate the Board, but his authority was gradually taken 
over by Secretary of the Treasury Mellon, particularly with regards 
the Board's open market operations' in buying' and selling Government 
securities. Thus, the Chairman of the Senate Committee on Banking 
and Currency had asked, during the Gold Reserve Hearings of 1934 : 

"Is it not true, Governor Young, that the Secretary of the Trea- 
sury for the past twelve years has dominated the policy of the Federal 
Reserve Banks and the Federal Reserve Board with respect to the 
purchase of "United States bonds?" 

Governor Young had denied this, but it had already been brought 
out that on both of his hurried trips to this country in 1927 and 1929 
to dictate Federal Reserve policy, Governor Montagu Norman of the 
Bank of England had gone directly to Andrew. Mellon, Secretary of 
the Treasury, to get him to purchase Government securities on the 
open market and start a movement of gold out of his country back to 

The Gold Reserve Hearings had also brought in a parade of other 
people who had more than a' passing interest in the operations of the 
Federal Reserve System. James Paul Warburg, just back from the 
London Economic Conference with Professor 0. M. W. Sprague and 
Henry L. Stimson, came in to declare that he thought we ought to 
modernize the gold standard. Frank Vanderlip suggested that we 
do away with the Federal Reserve Board and set up a Federal Mone- 
tary Authority. This would have made no difference to the New York 
bankers, who would have selected the personnel anyway. And Sena- 
tor Robert L. Owen, longtime critic of the System, made the follow- 
ing statement: 

"The people did not know the Federal Reserve Banks were or- 
ganized for profit-making. They were intended to stabilize .the credit 
and currency supply of the country. That end ha's not been accom- 
plished. Indeed, there has been the most remarkable variation in the 
purchasing power of money since the System went into effect. The 
Federal Reserve men are chosen by the big banks, through discreet 
little campaigns, and they naturally follow the ideals which are por- 
trayed to them as the soundest from a financial point of view." 

Benjamin Anderson, economist for the Chase National Bank of 
New York, said : 

"At the moment, 1934, we have 900 million dollars excess re- 
serves. In 1924, with increased reserves of 30O million, you got some 1 
three or four billion in bank expansion of credit very quiekly. That 
extra money was put out by the Federal Reserve Banks in 1924 

— 116 — 

through buying government securities and was the cause of the rapid 
expansion of hank credit. The banks continued to get excess reserves 
because more gold came in, and because, whenever there was a slacken- 
ing the federal Eeserve people would put out some more. They held 
back a bit in 1926 Things firmed up a bit .that year. And then in 
1927 they put out less than 300 million additional reserves, set that 
wild stock market going, and that led us right into the smash of 

Dr. Anderson also stated that: 

"The money of the Federal Eeserve Banks is money they create. 
WHen they buy Government securities .they create reserves. They 
pay for- the Government securities by giving checks on themselves 
and those checks come to the commercial banks and are by them de- 
posited m the Federal Reserve Banks, and then money exists which 
did not exist before. 

SENATOR BULKLEY: It does not increase the circulating 
medium at all? 


This is an explanation of the manner in which the Federal Re- 
serve Banks increased their assets from 143 million dollars to 45 bil- 
lion dollars in thirty-five years. They did not produce anything they 
were non-productive enterprises, and yet they had this enormous 
profit, merely by creating money, 95 percent of it in the form of 
credit, which did not add to the circulating medium. It was not dis- 
tributed among the people in the form of wages, nor did it increase 
the buying power of the farmers and workers. It was credit-money 
created by bankers for the use and profit of bankers, who increased 
their wealth by more than forty billion dollars in a few years because 
tney got control of the Government's eredit in 1913 by passing the 
Federal Reserve Act. 

Marriner Eceles also had a lot to say about the creation of 
money. He considered himself quite an economist, and had been 
brought into the Government service by Stuart Chase and Rexford 
buy Tugwell, two of Roosevelt's early brain-trusters. Eceles was the 
only one of that gang which came in with Roosevelt who stayed in 
office throughout his administration. Everybody else got disgusted 
with the way Roosevelt was turning America over to Wall Street,' and 
quit, but Eceles, a banker himself, was quite pleased with the' way 
Roosevelt was doing things. He also worshipped the great democrat 
so that he had every reason, both business and personal, to continue 
to shout huzzas. 

^„ B ^ fore ^ House Bankin £ and Currency Committee on June 24 
1941, Governor Eceles said : ' 

"Money is created out of the right to issue credit-money." 
Turning over the Government's eredit to private bankers in 1913 
gave them unlimited opportunities to create money. The Federal 

— 117 — 

Reserve System could also destroy money in large quantities though 
open market operations. Eecles said, at the Silver Hearings of 1939 : 
"When you sell "bonds on the open market, you extinguish re- 


Extinguishing reserves means wiping out a. hasis for money and 
credit issue, or, tightening up on money and credit, a condition winch 
is usually even more f avorahle to hankers than the creation of money. 
Calling in or destroying money gives the hanker immediate and un- 
limited control of the financial situation, since he is the only one with 
money and the only one with the power to issue money in a time ot 
money shortage. The money panics of 1873, 1893, 1907 1920-21, and 
1929-31 all were characterized by a drawing m of the circulating 
medium'. In cold economical terms, this does not sound like such a 
terrihle thing, hut when it means that people do not have money to 
pay their rent or buy food, and when it means that an employer has 
to lay off three-fourths of his help because he cannot borrow the 
money to pay them, the enormous guilt of the bankers and the long 
record of suffering and misery for which they a're responsible would 
indicate that no punishment is too severe for their crimes against 
their fellow-men. 

On September 30, 1940, Governor Eecles said: 
"If there were no debts in our money system, there would be no 

This is an accurate statement about our money system.. Instead 
of money being created by the production of the people, the annual 
increase in goods and services, it is created by the bankers > out of the 
debts of the people. This is mainly because we hold on to the obsolete 
gold standard as the basis for the issue of money and credit. Many 
bankers and economists have stated that the gold standard is inade- 
quate, and much of the poverty and hunger among the people is due 
to the fact that an adequate monetary system does not exist. 1 he in- 
adequacy of the present monetary system means huge profits for a 
few, and a hand-to-moiith existence for the many. Because it is inade- 
quate, it is subject to great fluctuations and is baWly unstable. These 
Legations are also a source of great profit For that reason the 
Federal Eeserve Board has consistently opposed any legislation which 
attempts to stabilize the monetary system. Its position has been set 
forth definitively in Governor Eecles' letter to Senator Wagner on 
March 9, 1939, and the Memorandum issued by the Board on March 

13, 1939. 

Governor Eecles wrote that : 

you are advised that the Board of Governors of the Federal 
Reserve System does not favor the enactment of Senate Bill No. 31 
a bilL to amend the Federal Eeserve Act, or any other legislation ot 
this general character." 

— 118 — 

The Memorandum of the Board stated, in its "Memorandum on ' 
Proposals to maintain prices at fixed levels": 

_ "The Board of Governors opposes any bill which proposes a stable 
price level, on the grounds that prices do not depend primarily on the 
price or cost of money; that the Board's control over money cannot 
be made complete; and that steady average prices, even if obtainable 
by official action, would not insure lasting prosperity." 

Yet -William MeChesney Martin, the present Chairman of the 
Board of Governors said before the Subcommittee on Debt Control 
the Patman Committee, on March 10, 1952 that "One of the funda-. 
mental purposes of the Federal Reserve Act is to protect the value 
of the dollar." 

Senator Flanders questioned him: Is that specifically stated in 
the original legislation setting up the Federal Reserve System ? 

_ "No," replied Mr. Martin, "but it is inherent in the entire 
legislative history and in the surrounding circumstances." 

Senator Robert L. Owen has told us how it was taken out of the 
original legislation against his will, and that the Board of Governors 
has opposed such legislation. Apparently Mr. Martin does not know 

Steady average prices, indeed, are impossible so 1 long as we have 
the speculators on the stock exchange driving prices up and down 
m order to reap profits for themselves. Despite Governor Eccles' in- 
sistence that steady average prices would not insure lasting pros- 
perity, they could do much to bring about such a condition. A man 
on a yearly wage of $2,500 is not made more prosperous if the price 
of bread increases five cents a loaf during the year. 

In 1935, Eccles said before the House Committee on Banking and 
Currency : 

_ "The Government controls the gold reserve, that is, the power 
to issue money and credit, thusi largely regulating the price struc- 

This is an almost direct contradiction of Eccles' statement in 
1939 that prices do not depend, primarily, on the price or cost of 

In 1935, Governor Eccles stated before the House Committee : 
"The Federal Reserve Board has the power of open-market 
operations. Open-market operations are the most important single 
instrument of control over the volume and cost of credit in this 
country. When I say 'credit' in this connection, I mean money, be- 
cause by far the largest part of money in use by the people of this 
country is in the form of bank credit or bank deposits. When the 
Federal Reserve Banks buy bills or securities in the open market, 
they increase the volume of the people's money and lower its cost- 
and when they sell in the open market they decrease the volume of 
money and increase its cost. Authority over these operations, which 

— 119 — 

affeet the welfare of the whole people, must be invested in a body 
representing the national interest." 

This was a plea for extension of the powers of the Federal Re- 
serve Board in the Banking Act of 1935, which he got. His statement 
that the Federal Reserve Board represents the national interest is the 
sheerest hypocrisy. If the First World War was in the national in- 
terest, if the Agricultural Depression was in the national interest, if 
the Great Depression was in the national interest, then the Federal 
Reserve Board represents the national interest. 

At the Silver Hearings held by the Senate Finance Oomniittee 
in 1939, Senator Robert L. Owen said : 

"When President Roosevelt came into power sis years a'go the 
outstanding currency on March 15, 1939 was $7.2 billion; then it was 
contracted by the FederaJ Reserve Board and only expanded by the 
purchase of silver certificates as to now reach the maximum of $6.7 
billion. During the first year of Roosevelt's administration the Federal 
Reserve Board contracted the currency by two billion dollars. At 
present the outstanding credits of the Federal Reserve System are a 
billion dollars less than they were when Roosevelt came in. Under the 
influence and direction of the Federal Reserve System 16,000 banks 
have failed in 16 years through mismanagement of the -System. The 
loss in production in the last ten years reached $200 billion' in pro- 
duets and services which might have been enjoyed by the people 
under a management which had their interests at heart, a'nd the 
country would be free of debt and heavy interest charges. These facts 
are proven by the records of the Federal Reserve Board of Governors. 
I make no charges against them on which they do not stand self-con- 
victed by their own speeches and publications. The Federal Reserve 
System with its enormous power, with its large bureau of research, 
with every opportunity to know the facts and take action to help us, 
has not given this country any relief, and has done all it could to 
worsen the situation. The only consistent action of the Board has 
been to set itself up firmly as an obstacle to the regulation of the 
value of money by Congress. The manner in which the stability, of 
our economic life has been impaired by the mismanagement of the 
Federal Reserve System, and the remedies therefor, have been clearly 
set forth in Senate Document 23 of the 76th Congress, 1st session. 
The members of the Board of Governors should not be bankers. The 
Board and the big bankers have the power to immediately end this 
depression by instructing the "Reserve Banks to buy bonds and notes 
of the United States on account of the United States at the rate of 
$50 million a day until such non-liquid securities converted into liquid 
money should correct the deficit of liquid money produced by the 
hoarding of demand deposits." 

In 1938, Congressman Wright Patman introduced a bill to Con- 
gress, HR 7230, which provided for government ownership of the 

— 120 — 

Federal Reserve Banks. Since the banks used the government's credit, 
this seemed fair enough, but the hill was defeated by Congress. 
Mr. Patman testified at the Hearings on this hill : 
"If the market price of securities is affected in any way, the 
Board of Governors become very active. I insist that if their powers 
are used to protect the general welfare as they have been used to 
protect the price of Government securities, our country would be 
much better off. Mr. Eeeles admitted to this committee in February, 
1937, that the Board of Governors adopted the policy of making 
money dearer in order to help investors secure a better return on their 
investments. ' ' 

During the Patman Committee Hearings on March 17, 1952, 
Senator Flanders said, "It has seemed to me that the most foolproof 
business operation in the world was that of the Federal Reserve 
banks when they were pegging the bond market. They were required 
to buy when stuff was low, and were required to sell when their pro- 
duet was high." 

C. F. Ross said before the annual meeting of the American 
Economic Association in 1947 : 

"Bank credit deflation as encouraged by the Federal Reserve 
System in 1920-21, 1929-32, and 1937-38, has an important, three-way 
adverse effect on business which is delayed by six months. First, a 
. change in the long-term interest rate lowers the capitalization of cur- 
rent profits. There are two more immediate effects on business,- as 
a result of increasing unemployment and increase in production, 
(decrease in money unit wage cost) nonfarm prices drop more rapidly 
than prices of metals and metal products. In consequence, the demand 
for investment collapses and about six months after the Federal Re- 
serve Board has initiated a deflationary policy." 

R. G. Hawtrey, the English economist, writes on the effect 
which changes in the interest rate have on wholesale inventories. 
Wholesale inventories in the United States average about twenty bil- 
lion dollars worth of goods which are readily convertible into cash. 
Thus, a change in the interest rate directly affects such a volume of 
goods-money. Holding the goods when there is a market for them 
means a depreciation and storage charges, but if the interest. rates go 
up, the goods must be moved to get cash, while, if the interest rate 
goes down, money becomes cheaper and the wholesaler has to hold his; 
goods until money becomes dearer. 

Late in 1936 and throughout 1937, a sudden depression swept 
over the United States, popularly known as the "business recession 
of 1936-37." Like other depressions caused by the Federal Reserve 
System, businessmen were at a loss .to explain this one. The country 
was prosperous, Mr. Roosevelt had just been re-elected against neg- 
ligible opposition, and yet a depression came along which wiped out 

— 121 — 

a good many people who had begun to get back on their feet after 
the crash of 1929. 

Emmanuel Goldenweiser, director of research for the Federal Re- 
serve Board, says : 

"In the summer of 1936, banks had excess reserves. The Federal 
Reserve Board decided to use its newly acquired power to raise reserve 
requirements in order to immobilize these excess reserves. The Boatd 
repeated this action in the spring of 1937, thus ushering in the serious 
reaction of 1937-38." 

Immobilizing reserves was the equivalent to extinguishing them, 
insofar as the available supply of money and credit was concerned, 
and, as Governor Eccles had testified, extinguishing reserves meant 
wiping out a basis for issuing money and credit, tightening up the 
money market, and ushering in a business depression. 

Senator Robert L. Owen testified at the Hearings on HR 7230, 
the bill to make the Federal Reserve banks a national property, that : 

"In 1937, when the Federal Reserve Board called upon the banks 
to raise their reserves to twice what they had been before, there was 
a contraction of credit of two billion dollars." 

H. B. Elliston, editor of the Washington Post, wrote in an article 
in the Atlantic Monthly in July, 1938 that: 

"A coincidence between the use of the Federal Reserve brakes 
and the running down of the economy is evident in 1936-37." 

Paul Einzig, in ""World Finance," MaeMillan's, 1938, writes 
that : 

"In March, 1937, Roosevelt condemned the sharp rise in com- 
modity prices which he had encouraged since 1933, and foreshadowed 
measures against it. This was largely responsible for the gold scare of 
1937 and the 'recession' in the United States. Professor 0. M. "W. 
Sprague, former economic adviser to the Bank of England, and 
proponent of the Aldrieh Plan from 1910 to 1912, left in 1933 to join 
the United States Treasury, for whom he negotiated along with James 
Paul "Warburg and Henry L. Stimson, during the London Economic 
Conference. In 1934, he resigned. During his stay in Europe in 1936, 
both publicly and privately, Professor Sprague stated that there was 
likelihood of a cut in the American buying price of gold. His remarks 
were repeated in all the markets. It may seem strange that such im- 
portance should have been attached to, the private views of a pro- 
cessor, who, at that time, held no official position whatsoever, al- 
though he used the Bank of England as his mailing address, and had 
an office placed at his disposal there. The gold scare was artificially 
kept alive by other gold scaremongers. Dr. L. G. Tripp of the Nether- 
lands Bank, and President of the Bank for International Settlements, 
in the annual report for 1936-37, had a chapter entitled 'A Tear of 
Mounting Gold Supplies. ' Professor Cassel carried on the propaganda 
against gold. Roosevelt made a public statement denying that the 

— 122 — 

price of gold would be reduced 'at this time 5 , which, indicating as it 
did a future reduction, only made matters worse. ' ' 

The President of the United States lending his active support to 
further a group of international gold dealers may seem a difficult 
fact to some people, but this was only one incident of Roosevelt's use 
of his high office to help his friends. 

One of the most reprehensible of the scoundrels heretofore named 
in this chronicle of rascality is the aforementioned Professor _ Oliver 
M. W. Sprague, who figures in this work from its first to its last 
pages. "We find Sprague in 1904 busily writing articles insisting that 
we have a central bank. A Professor of Economics at Harvard in 1911, 
he was writing propaganda for the Aldrich Plan. In 1913, he was 
writing propaganda for the Federal Reserve Act, saying that it wag 
really a' bankers' benefit. In the 1920s, he was writing a series of 
articles defending the gold standard. In the 1930's, he was skipping 
about the financial capitals of the world, running errands for the inter- 
national gold merchants. No wonder a mere professor had an office 
placed at his disposal in the Bank of England I This Harvard 
economist joined the United States Treasury for a few months and 
immediately was sent to represent the interests of this country at the 
London Economic Conference, a man who had never before worked 
for the Government. In 1937 he was a key member of the Economists' 
Committee on Monetary Policy, a lobbying organization for Wall 
Street which, according to its own reeords, spent $45,000 on literature 
opposing the monetary reforms of Senator Elmer Thomas, who had 
that year proposed a commodity dollar system. 

Chapter Fifteen 

The newest name in the international financial hierarchy is Her- 
bert Lehman. Of 106 firms which founded the New York Cotton Ex- 
change in 1870, only two survived to 1940, Lehman Brothers and 
Hentz and. Company. Hentz and Company was taken over by the 
Baruch Brothers in 1917 when it became inadvisable to continue the 
firm of Baruch Brothers, bankers, since Bernard Baruch was entering 
public service- Anna Rochester wrote in 1935 that the banking leader- 
ship of Kuhn, Loeb Co. was being replaced by the more progressive 
methods of Lehman Brothers. 1935 was the year of the Nye Committee 
investigation of profiteers and munitions-makers in the First "World 
War. The DuPonts were made the scapegoats of that investigation, 
the purpose being to frighten Congress into accepting without amend- 
ment all of Baruch 's plans for controlling this country during the 
Second World War. In a series of lectures to .the Nye Committee, he 
outlined, step by step, the draft, rationing of food and essential war- 
time materials such as oil and rubber, in which he had large interests, 

— 123 — 

the cost-plus manufacturing system, price control, and the corporate 
excess profits tax system. The Baruch plans were followed minutely 
in setting up the military dictatorship which ruled this country from 
1940 to 1945. 

Chairman Lister Hill of the Nye Committee stated on January 
28, 1937, that: 

"We are very fortunate in having with us this morning as our 
witness Mr. Bernard Baruch. As you gentlemen will recall, Mr. 
Baruch was the Chairman of the "War Industries Board set up by 
Woodrow "Wilson during the First World War. It can be said without 
exaggeration that there is no man in the country who has given more 
time, more- thought, to the subject of taking the profits out of war 
than Mr. Baruch." 

Whether Chairman Hill was being witty, we cannot say, but 
certainly Mr. Baruch had taken as many profits out of war as any- 
body in this country. As mentioned earlier, Baruch had profited by a 
phony peace rumor in 1918 which netted him a profit of $750,000 
in one day on stock in United States Steel. In 1935, at the Nye 
Committee Hearings, Mr. Baruch had testified that: 

"All wars are economic in their origin." 

Other interesting statements of Mr. Baruch are given in the fol- 
lowing extracts from the Committee Hearings 

"If the Germans had been smart enough, we could not have won 
that war. There was 35 percent of the nitrates we could not get. 
There was a great battle between the two economic sysems as to which 
would get the product. We had the gold which we would promise the 
Chilean government. We promised that we would give them the gold 
within six months after the signing of the treaty of peace, We ear- 
marked the gold in our Treasury for them on the condition that they 
would do certain things. We were able in that way to get what we 
wanted in the way of nitrates. 

MR. FADDIS : Do you think section 5 of your proposal is broad 
enough to include control of the conscientious objectors we would 
have in time of war? There is a group which seems to be growing a 
great deal. 

ME. BARUCH : Your draft act would have to take care of that. 
That is one of the things you would have to set up! 

MR.. COSTELLO : The thought I had was the possibility of the 
conscientious objector being compelled to take part in some useful 

MR. BARUCH : He works or fights: We will put him in some^ 
thing that is useful." 

In 1935, here were the representatives of the people of the United 
States calmly discussing the -dictatorship they were going to set up 
over their own people. Again Mr. Baruch at the Nye Committee hear- 

— 124 — 

MR. BARUCH: "The President (Wilson) one time gave me a. 
letter authorizing me to take over any industry or plant. There was 
Judge Gary, President of United States Steel, whom we were having 
trouble with, and when I showed that to him, he said, 'I guess we 
will have to fix this up', and he did fix it up. You] gentlemen will 
have your ceiling on prices to start with, and you can commandeer 
any plant during the war." 

Miss Jeanette Rankin commented, during the Nye Hearings, that : 

'It is perfectly possihle to take the profits out of war, but it is 
not possible to take the profits out of wax by any of the schemes that 
you rich men suggest, and you haven't had any proposals for taking 
the profits out of war from the poor men." 

The Nye Committee Hearings proved that Congress already con- 
sidered our participation in the Second "World "War an inevitability 
as early a's 1935, although we were supposedly at peace with the world. 

Mr. Baruch also stated that : 

"Money would be mobilized the same as men and materials, be- 
cause a price would be fixed at which money could and should be 
used. I, was one of the first who suggested the fixing of prices in 
the World War, but I do not think you can fix prices and distribu- 
tion in peacetime." 

It may now begin to dawn what all this has to do with the Federal 
Reserve System. The Federal Reserve System is a central bank whose 
biggest job is war finance. Its connection with Wall Street brings us 
back to the public career of Herbert Lehman. 

Mayor and Babette (Neugass) Lehman had three sons. Arthur 
went to Harvard, Irving went to Columbia, and Herbert went to 
Williams. When they finished college, they entered the family bank- 
ing house of Lehman Brothers, New York, where they learned the 
intricacies of world finance, in which their firm played such an im- 
portant part. Herbert learned, for instance, that the Russian economy 
was the economy of the future, and he learned that the American 
economy needed a lot of the improvements they were developing in 
Russia. Herbert Lehman now has more than twenty years of publie 
sreviee behind him. 

He was a Colonel on the Army's General Staff during the First 
World War, a strange place to find a man who had had no military 
training or experience. He was Lieutenant-Governor and Governor 
of New York, Military Governor of Italy in 1944 and 1945, head of 
the United Nations Rehabilitation and Relief Association after the 
Second World War, and presently Senator of the United States from 
New York. 

"Who's Who in American Jewry" for the year 1928 lists Her- 
bert Lehman as a director of many important corporations, a partial 
list of which is given here : 

Abraham & Straus Department Store (a Rothschild enterprise) ; 

— 125 — 

County Trust Company of New York; Jewel Tea Company; Vad 
Eaalte Company; Kelsey-Hayes "Wheel Company; Pierce Oil Cor- 
poration; Spear Company; Studebaker Corporation; Franklin Simon 
Company; Robert Reis and Company; General American Investors, 
Limited; Knott Hotels; Fidelity Trust Company; and vice-president 
of the Palestine Economic Corporation, organized for the industrial 
development of Palestine. In this work he has been helped most by 
Edmund M. M. "Warburg, director of the Jewish Telegraphic Agency, 
and General Chairman of the United Jewish Appeal. 

In 1939, Congressman Jerry Voorhis of California had begun to 
ask questions as to why the Government didn't own the Federal Re- 
serve Banks. According to his autobiography, Roosevelt asked him to 
come over to the White House, and they talked, and Roosevelt said 
that it seemed to him that it was time they got around to taking over 
those Federal Reserve Banks, which were now worth $45 billion, as 
compared to the $143 million they had started with. 

The nest day Roosevelt's secretary called Jerry Voorhis and told 
him he had better forget about that conversation, because they would 
not be able to do it for awhile. 

The trouble was that the second "World War was coming up, and 
we needed that privately owned central bank to take care of financing 
the war. Einzig remarks, in "World Finance, 1939-40," Macmillan's, 

"The transition from 'peace finance' to 'war finance', in com- 
parison with. the hurried change of 1914, was carried through in 1939 
without any major disturbances." 

During the period from 1942 to 1945 the Federal Reserve in- 
creased its holdings of Government securities by $22 billion. In other 
words, its assets doubled during the Second World War, a fortuitous 

There were no major disturbances because the years between the 
two World Wars had been years during which the great central banks 
secured and consolidated control of the world's money and credit. 
The Federal Reserve System had wiped out all opposition in the Great 
Depression, and there were numerous organizations which facilitated 
exchange of information and cooperation between the central banks. 
First there was the League Finance Committee of the League of 
Nations, then there was the Bank for International Settlements at 
Basle, Switzerland, more popularly known as "the central bankers' 
club", and there were the periodic Economic Conferences at which 
the central bankers gathered to discuss their control of the world. 

During American participation in the Second World War, the 
Federal Reserve System, besides its normal duties of war finance, 
took on several new totalitarian controls, one of the most important 
being the administration of consumer credit, that is, deciding what 
the worker can spend his salary on. 

— 126 — 

Governor Marriner Eeeles testified at the Senate Hearings on 
the Office of Price Administration in 1941 that : 

"The Federal Eeserve Board has acted in consultation with 
Mr. Henderson's staff. (Leon Henderson, government economist, was 
appointed by Eoosevelt as head of the Office of Price Administration 
during the war.) He is greatly interested in this question of consumer 
credit for the reason that control of the consumer installment credit 
is a very important power to the principal control of credit. During 
the last war there was a shortage of funds, and all during that War 
we were tied to a gold standard to such an extent that we let the gold 
standard determine our ability .to finance. "We have learned a good 
deal since. "When the war was over, the Federal Beserve System forced 
a contraction of credit through a monetary policy (causing the Ag-< 
gricultural Depression of 3920-21), which, of course, could not do 
other than force a great sale of Government securities (at this point 
discussion off the record, as it frequently was when certain financial 
matters were being discussed). You have to protect the market price 
of Government securities. The interest rate and the money market 
are artificial things. New York is the only money market you have. 

ME. SMITH: The cost of the gold purchases is not reflected 
anywhere in the books o£ the Treasury, so that it enters directly into 
the public debt structure? 

EOOLES : That is correct. 

ME. PATMAN: Governor Eeeles, when did the Federal Eeserve 
System start charging the Government agencies a service charge 1 
ECCLES : I really could not say. 

ME. PATMAN: "Wasn't it intended when the Federal Eeserve 
Act was passed .that the Federal Eeserve bank would render this serv- 
ice without charge — since under 'the Aet the Government would 
give them the use of the Government's credit free? 

ECCLES: I wouldn't think so." 

Emmanuel Goldenweiser writes of the Board during this time: 
"During the war, quantitative controls were abandoned in order 
to support government finance." That is, war finance. 

The Second "World "War also gave the big bankers who owned the 
Federal Eeserve System a chance to unload on the country billions 
of dollars printed early in 1930, in the biggest counterfeiting opera- 
tion in history, all legalized by Eoosevelt 's government, of course. 
Henry Hazlitt writes in the January 4, 1943 issue of Newsweek 
Magazine : 

"The money that began to appear in circulation a' week ago, 
December 21, 1942, was really printing press money in the fullest 
sense of the term, that is, money which has no collateral of any kind 
lehind it. The Federal Eeserve statement that 'The Board of Gov- 
ernors, after consultation with the Treasury Department, has author- 
ized Federal Eeserve Banks to utilize at this time the existing stocks of 

— 127 — 

currency printed in the early thirties, known as 'Federal Keserve 
Banknotes'. "We repeat, these notes have absolutely no collateral of 
any kind behind them." 

Governor Eecles also testified to some other interesting matters 
of the Federal Reserve and war finance at the Senate Hearings on 
the Office of Price Administration in 1944: 

tc The currency in circulation was increased from seven billion 
dollars in four years to twenty-one and a half billion. We are losing 
some considerable amounts of gold during the war period. As our ex- 
ports have gone out, largely on a lend-lease basis, we haVe taken 
imports on which we have given dollar balances. These countries' are 
now drawing off these dollar balances in the form of gold. 

ME. SMITH: Governor Eecles, what is the objective that the 
foreign governments are after in this projected program whereby 
we would contribute gold to an international fund? 

GOVERNOR BOGLES: I Avould like to discuss OPA, and leave 
the stabilization fund for a time when I am prepared to go into it. 

MR. SMITH: Just a minute. I feel that this fund is very per- 
tinent to what we are talking about today. 

MR. FORD : I believe that the stabilization fund is entirely off 
the OPA and consequently we ought to stick to the business at hand." 

The Congressmen never did get to discuss the Stabilization 
Fund, _ another setup whereby we would give the impoverished 
countries of Europe back the gold which had been sent over here. 
In 1945, Henry Hazlitt, commenting, in Newsweek of January 22, 
on Roosevelt's annual budget message to Congress, quoted Roosevelt 
as saying: 

"I shall later recommend legislation reducing the present high 
gold reserve requirements of the Federal Reserve Banks." Hazlitt 
pointed out that the reserve requirement was not high, it was just 
what it had been for the past thirty years. Roosevelt's purpose was 
to free mere gold from the Federal Reserve System and make it 
available for the Stabilization Fund, later called the International 
Monetary Fund, part of the "World Bank for Reconstruction and 
Development, the equivalent of the League Finance Committee which' 
would have swallowed the financial sovereignty of the United States' 
if the Senate had let us join it. Consequently, the American people 
suffered the Great Depression as a result of not joining the League 
of Nations: 

Chapter Fifteen 

Immediately after the Second World War, Governor Marriner 
Eecles began agitating to get back under the control of the Federal 
Reserve System the 160 billion dollars worth of short-term Govern- 

—=128 — 

ment securities, the war bonds purchased by the war workers and 
soldiers. At the Bretton "Woods- Hearings on the establishment of the 
International Monetary Fund, Eceles said : 

"The way we financed the war resulted in too much bank 
financing. The Federal Reserve has to stand ready to purchase these 
short-term Government securities (war bonds) at the established rate. 
The option is in the hands of the banks to provide themselves with 
reserves by selling short-term securities. That is why increased con- 
trol ly our central bank is necessary. The option or control over the 
monetization of the national debt is going to be in the hands' of private' 
banks unless it id again restored to the central banking authorities 
of the Federal Reserve System. You cannot deal with this through 
the usual orthodox means of raising the rate through open market 
operations. I think that management of the credit structure is a minor 
factor in preventing inflation. We must have this International Mone- 
tary Fund. An international currency is synonymous with inter- 
national government." 

What Governor Eeeles feared was that the banks outside of the 
Federal Reserve System now had the same opportunities of creating 
money which had been reserved by the central Federal Reserve Banks, 
the privilege of creating money by creating reserves when they sold 
the short-term Government securities, the war bonds issued during 
the Second World War. How this is done is best revealed by Governor 
Eccles at Hearings before the House Committee on Banking and 
Currency on June 24, 1941: 

BOOLES : "The banking system as a whole creates and ex- 
tinguishes the deposits as they make loans and investments, whether 
they buy Government Bonds or whether they buy utility bonds, or 
whether they make Farmers' loans. 

MR. PATMAN .- I am thoroughly in a'ceord with what you say, 
Governor, but the fact remains that they created the money, did they 

ECCLES: Well, the banks create money when they make loans 
and investments." 

On September 30, 1941, before the same Committee, Governor 
Eccles was asked by Representative Patman: 

"How did you get the money to buy those two billion dollars 
worth of Government securities in 1933 ? 

ECCLES: We created it. 

MR. PATMAN: Out of what? 

ECCLES: Out of the right to. issue credit money. 

MR. PATMAN : And there is nothing behind it, is there, except 
our Government's credit? 

ECCLES : That is what our money system is. If there were no 
debts in our money system, there wouldn't be any money." 

— 129 — 

On June 17, 1942, Governor Bec-les was interrogated by Mr. 

BOCLES: "I mean the Federal Reserve, when it carries out ail 
open market operation, that is, if it purchases Government securities 
in the open market, it puts new money into the hands of the hanks; 
which creates idle deposits. 

DEWEY: There are no excess reserves to use for this purpose? 

ECCLES: Whenever the Federal Reserve System buys Gov- 
ernment securities in the open market, or buys them direct from the 
Treasury, either one, that is what it does. 

DEWEY: What are you going to use to buy them with! You 
are going to create credit ? 

E COLES: That is all we have ever done. That is the way the 
Federal Reserve System operates. The Federal Reserve System creates 
money. It is a bank of issue." 

At the House Hearings of 1947, Mr. Kilburn asked Mr. Eecles: 

"What do you mean by monetization of the public debt? 

ECGLES: I mean the bank creating money by the purchase 
of Government, securities. All money is created by debt— either private 
or public debt. 

FLETCHER: Chairman Eecles, when do you think there is a 
possibility of returning to a free and open market, instead of this 
pegged and artificially controlled financial market. we now have? 

ECCLES: Never. Not in your lifetime or mine." 

We have to have an artificially controlled market because the 
big bankers do not wish the power of creating money to pass out of 
their hands. These hearings demonstrate the way that banks can create 
money if they have quantities of these Government short-term se- 
curities or war bonds which were sold during the war. The bankers 
never intended that the people should get their money back on those 
bonds. Eecles' group wanted the monetization of the public debt 
stopped by the exercise of a financial dictatorship which would forbid 
banks to sell these war bonds and create money by doing so. This 
would be in keeping with the desires of the International Monetary 
Fund. Like his dead master, Roosevelt, Eecles was an ardent inter- 
nationalist. His methods of controlling the 160 billion dollars of 
money floating around was contrary to President Truman's gang, 
so Eecles was deprived of the Chairmanship of the Federal Reserve 
Board of Governors and replaced by Thomas B. McCabe, head of the 
Toilet-Paper Trust, the Scott Paper Company. McCabe, according 
to Drew Pearson, had agreed to go along with the Truman-Snyder 
crowd, who had decided to wipe out the 160 billion dollars of war 
bonds owned by citizens and banks outside the Federal Reserve Sys- 
tem by a very simple method, inflation. Subsidies of farm products 
and other commodities were increased by the Truman Administration, 
which since 1945 has steadily followed an inflation policy for the 

— 130 — 

purpose of extinguishing that part of the national debt owed to 
American, citizens. 

Like Thomas D. Jones in 1914 and Eugene Meyer, Jr. in 1931, 
Thomas B. McCabe had a very ba'd record for a man who was to be 
given supreme financial authority over the American people. He had 
been President of the Scott Paper Company until 1945, when he was 
appointed head of the Foreign Liquidation Commission, which dis- 
posed of twelve billion dollars worth of surplus Army goods stored 
abroad. Practically all of those goods found their way into the black 
markets of the world, or were sold by black market methods by Mc- 
cabe's assistants. The industrialists did not care what he did with the 
stuff. They had been paid for it, the bill was now part of the national 
debt, and all McCabe had to do was to be sure that it did not get 
back into the United States and compete with the post-war produc- 
tion. He could give it away, sell it, anything to get it off the market. 

The Senate Hearings proved conclusively that Thomas B. Mc- 
Cabe was directly responsible for the black market dealings carried 
out by men under his immediate supervision. One of the more un- 
savory of such incidents was McCabe 's officer in charge of surplus 
stored in China' selling blood plasma, (which had been donated by 
loyal Americans to the troops who were fighting overseas) on the 
Chinese black market. The enterprising ~ Chinese advertised it in 
their newspapers, being careful to point out to prospective purchasers 
that it was American blood. The Hearings also brought out the in- 
teresting fact that large quantities of narcotics, chiefly morphine 
and codeine from first-aid kits, went from McGabe's Foreign Liquida- 
tion Commission directly into international narcotics trade. 

These billions of dollars worth of Army material which were 
being given away .or sold for a fraction of their worth, had a very 
corrupting influence on the domestic politics of countries where 
there were large depots of such supplies. Particularly in England, 
China, India, and the Philippine Islands did the Foreign Liquidation 
Commission encourage criminal activity among politicians which, 
six years later, is still bringing to light unsavory incidents. 

"Walter B. Sehleiter, employee of Muller-Phipps Asia Ltd., New 
York, export-import merchants dealing with China and India, had 
been one of McCabe 's agents in India. He got into trouble because 
he tried to be honest, and attempted to keep open bids on the 
merchandise which he was charged with disposing of. A British firm, 
represented by Sir Archibald Rowlandson, had already made an agree- 
ment over Sehleiter 's head to buy this merchandise at their own price, 
land Sehleiter was sent home. He told the following amusing anecdote 
at the Senate Hearings on Thomas B: McCabe. 

SENATOR TOBEY, CHAIRMAN: That is the figure, three 
hundred million dollars, that you accuse Sir Archibald Rowlandson of 
stealing from you, facetiously! 

— 131 — 

. SCHLEITER : That was more of less humorous. 

TOBEY: But it is a grim joke, accusing a man of stealing three, 
hundred million dollars from you. 

SCHLEITER: That is what I thought he had done. And he 
more or less admitted it, Senator. 

TOBEY: Did he? 


TOBEY: Did he pay for the lunch? 

■SCHLEITER': He paid for the drink." 

Despite these revelations of unbelievable corruption, officially 
involving a high Government agency, the Foreign Liquidation Com- 
mission, with deals in narcotic smuggling and selling American aloca" 
on the Chinese black market, the Senate approved of the fact that 
Thomas B. McCabe had gotten rid of twelve billion dollars worth of 
Army surplus on the black markets of the world, and con firmed his 
appointment by President Truman as Chairman of the Board of Gov- 
ernors of the Federal Reserve System. 

Thomas B. McCabe now issued. a statement that: 
"Our basic problem is to absorb reserves in the Federal -Reserve 

This was an oversimplification of the problem. The reserves, in 
the first place, which he wished to absorb, were ou,tside of the 
jurisdiction of the System. The Administration ha'd to extinguish 
them by encouraging high prices. Thus, .the amount of currency,- the 
printing press Federal Reserve notes without any collateral behind 
them, which by any name meant counterfeit, had swollen from seven 
billion dollars in 1940 to twenly-one and a half billion dollars in 
1944, had shrunk after the war, and by spring of 1951 had been 
swollen again to more than twenty-seven billion dollars, td increase 
inflation and wipe out that part of the debt owed to the loyal workers 
and soldiers who had been cajoled and threatened into buying war 
bonds during the war. The Federal Reserve had to play second fiddle 
to John Snyder and the United States Treasury in the handling of 
this outstanding credit. Meanwhile, the Treasury was spending bil- 
lions of dollars to keep up the price of these short-term Government 
securities on the exchange, in order to protect the big speculators like 
Barueh and Lehman who owned most of them. 

Eccles' last plea for power in the Federal Reserve System 
through dictatorial methods in handling, this free credit had been 
made at the House Hearings on the continuance of the Office of 
Price Administration in 1946, when he said : 

"Our money supply expands through borrowing. The Govern- 
ment can stop further creation of bank credit by bringing about a 
balanced budget. It could reduce the existing supply of money by 
paying down the public debt and have commercial banks sell some 
of their Government securities to nonbank investors (charitable and 

— 132 — 

educational foundations). Stopping further nionetization of the public 
debt will tend to stabilize interest rates." 

This statement wis in direct contradiction to the wishes of the 
crowd backing Truman and Snyder. They wanted further monetiza- 
tion of the debt as an integral part of their , inflation policy, and 
they most emphatically did not wish to pay down the public debt. 
"With five billions of dollars a year in interest coming in, what banker 
would wish to pay down the public debt? 

At the House Committee on Banking and Currency Hearings 
February 21, 3945, on the extension of the public debt, Under- 
secretary of the Treasury Bell read a prepared statement saying that 
the public debt of the United States then amounted to 232 billion 
dollars. Mr. Jenkins of Ohio protested that the actual debt was at 
least a hundred billion dollars more than that. Mr. William Lemke 
of North Dakota figured that, considering the total long term com- 
mitments of the government, the debt amounted to 643 oillion dol- 
lars, a figure which has not yet been successfully disputed. 

In answer to Mr. Jenkins' protest about a mere hundred billion 
dollars, Undersecretary Bell said: 

"Oh, you must be including 67 to 68 billion dollars of unliquidat- 
ed obligations under contracts entered into by various departments 
of the Government." The unliquidated obligations, as Undersecretary 
Bell finally admitted, were debts. 

Then Secretary of the Treasury Fred Vinson, speaking at the 
Bretton "Woods Hearings before the House Committee in May, 1946, 
spoke of Britain's First "World "War debt, incurred through the 
ministrations of Ambassador "Walter Hines Page, J. P. Morgan 
Company, and "Woodrow "Wilson: 

"Her first war debt was four and a quarter billion dollars, of 
which she paid about two billion, of which 450 million dollars was; 
principal, and one billion sis hundred million was interest." The 
significance of these figures should not be lost. The principal was 
owed to the American people, through the proceeds of Liberty Loans. 
The interest was paid to international bankers. Three-fourths of her 
total repayment went to bankers in the form of interest, one-fourth 
came back to our Treasury, and moi"e than half of the total debt was 
repudiated in its entirety by the British Government- 
Secretary Vinson, later Chief Justice c-f the Supreme Court, also 
testified at the Bretton "Woods Hearings that: 

"One reason we did not accept the Clearing Union was that it 
permitted credit creation. The Bretton "Woods Plan Avas quite dif- 
ferent. I was there helping make it. The idea of creating credit was 
rejected by the International Bank." 

The International Bank for Reconstruction and Development, 
headed by Eugene Meyer, Jr., and the International Monetary Fund, 
were created to extinguish the enormous amount of credit created by 

— 133 — 

tire Second World War, After the First World War, we had two 
great depressions to extinguish the credit produced by the war. The 
totalitarian dictatorship of these organizations, taking oyer thet 
sovereignty and the right to coin money of every country in the 
World, should make depressions unnessary. 

Governor Beeles had remarked before the Senate Committee 

"An international currency is synonymous with international 
government. ' ' 

The League of Nations had failed because it had not created 
an international currency. It had not been able to do so because it 
had failed to enlist the credit of the Government of the United 
States behind it, and we had the Great Depression of 1929-31 as the 
inevitable result of that condition. 

Colonel Ely Garrison, in his book, "Roosevelt, Wilson, and the 
Federal Reserve Act", published in 1915, had pointed out that: 

"In finance, there can be no doubt about the stabilizing in- 
fluence of internationalism, whereby closely knit alliances of money 
groups and forces in scattered sections of the world can come to the 
relief of their beleaguered friends." 

Essentially, this internationalism means making the people of 
one country responsible for debts of another country. Through 
central banks, the big bankers have organized the credit of entire 
countries, and through alliances of central banks, they have organized 
the credit of groups of countries. Through the creation of enormous 
and inextinguishable debts, they now propose to rule unchallenged 
over all peoples of the world. 

Phillips, in his textbook, "Readings in Money and Banking", 

"The banker, relatively speaking, has no human fa'ctor to con- 

Henry Hazlitt, in Newsweek of August 16, 1948, said : 

"The world dollar shortage will last as long as world exchange 

control lasts. And the American taxpayer will continue to foot the 


We can thank Eugene Meyer, Jr. and the International Mone- 
tary Fund for that. Young pointed out in the American Economic 
Review of September, 1947, that: 

"The International Monetary Fund provided for revision of 
rates, but only on the event of fundamental disequilibrium. The day 
of fluctuating rates is gone. Rates now a matter of considered decision 
to a' degree greater than ever before." 

Fundamental disequilibrium, of course, meant any time the 
people might get hold of their own money, as after the Second War 
When they had that, purchasing power held in the war bonds which 
they had bought. 

— 134 — 

E. S. Sayers, .in the Quarterly Journal of Economics of May, 
1949, gives a clear summation of the aims of the Federal Reserve 
System since the end of the war. He says: 

"The latest decades have heen a consolidation of the power of 
the world's greatest central banks, the Federal Reserve System, and 
the Bant of England— of their power, that is to say, to control their 
respective monetary systems. The Governors of the Federal Reserve 
Board, however, are not satisfied by the great extension of their 
power over the total supply of money. Among the newer powers they 
have been persistently seeking from Congress are a freer hand in 
the alteration of cash reserve rations, and the power to prescribe 
minimum rations of short-term government paper to be held by the 
commercial banks. Although the latter proposal found its origin 
in the particular shape of postwar bank statistics, it is fundamentally 
to be a'scribed to the Reserve Board of Governors' desire to secure 
complete control over the quantity and price of credit. The swing of 
opinion is away from a simple quantitative control of credit, such as 
was given by the original Federal Reserve Act of 1913, and the desire 
of the Federal Reserve System for permanent powers on the lines of 
the wartime emergency powers, to regulate installment credit, is in 
substantial alignment with Governor Eccles' ideas on consumer credit 
control and the regulation of house-purchase finance, although cen- 
tral bank action in this field could hardly be necessary where gov- 
ernment subsidies were important and could be varied as a part of 
general employment policy." 

Eccles wa's as power mad as his mentor Roosevelt. He sought to 
maintain the dictatorial consumer credit controls and to secure for 
the Board of Governors power in the home finance field, in which the 
United States already was operating a substantial monopoly. 

Representative H. 0. Talle of Ohio pointed out that: 

"If a' central bank has in mind control of credit, as we had in 
our Federal Reserve System when we employed the rediscount rate 
and open market operations, and as when the government operates 
on a cheap money policy, the central bank of the government is 
thwarted in its attempt to control credit and stabilize the price level. 
Our money system and our banking system are the same. ~W& are 
slaves to our public debt." 

The 643 billion dollars of public debt is the controlling factor 
in America's financial system, and the Federal Reserve Board has 
managed it as a central bank manages a debt, thaU is, the Govern- 
ment's credit is now mortgaged to them, and there is no way under 
the present monetary system whereby the credit of the people of the 
United States can ever become their rightful property once more. 

Edward C. Simmons said in the American Economic Review of 
September, 1947 : 

"There can be no doubt that the twelve Federal Reserve Banks 

— 135 — 

and the coordinating machinery represented "by the Board of Gov- 
ernors and the Open Market Committee constitute a central hank 
which has been erected , to make the volume of the mass of payment 
a manageable variable." 

This is a more complicated way of saying, "control of money 
and credit." 

C. E. "Whittlesey of the University of Pennsylvania said before 
the American Economic Association in 1944 : 

"Bank loans have changed from commercial loans to comprise 
substantial amounts of collateral, real estate, term, and personal loans. 
They have very largely ceased to be commmercial in origin or self- 
liquidating in character. Tn addition, income from services, particular- 
ly in service charges on checking accounts, has .come to play an ap- 
preciable part in bank emolument. A second major change in bank- 
ing has been the emergence on a large scale of excess reserves, and 
their continuance year after year in spite of strong efforts to reduce 
them. While excess reserves have existed for short periods in the 
past, notably after the establishment of the Federal Reserve System, 
this constitutes a distinct departure from accepted banking tradition. 
Keynes laid down the law that reserves must be used to the hilt. 
Other changes involve establishment of the Federal Deposit Insurance- 
Corporation, adoption by the Federal Eeserve Board of an active 
policy with respect to government bonds, and to the pattern of in- 
terest rates." 

"Whittlesey's survey of the changes in the character of banking 
point up the most important factor, the lessening and almost dis- 
appearance of banking's oldest and primary function, lending money 
to start businesses and aid in production, loans which were self- 
liquidating in character. In the first place, the giant trusts established 
during and after the Great Depression of 1929-31, controlled and 
financed themselves from their own treasuries any further business, 
expansion in this country, so that avenue of investment was closed to 
banks. It was to the bankers' own interest, however, to. change the 
nature of their loans from self-liquidating to inextinguishable debts, 
as the following quotation from Henry Ford makes apparent: 

"The one aim of these financiers is world control by the crea- 
tion of inextinguishable debts. And since gold is a metal which neither 
laws or inventions can increase, the supplies of which Nature has 
so far limited, control has become a' very simple achievement." 

Since the end of the Second "World War, there has sprung up 
a world-wide black market in gold, in which the Federal B«serve 
System, as the world's largest holder of gold, and the United States 
Government, which has pegged the price of gold at $35 an ounce, 
are inextricably involved. Our Government is selling gold at $35 
an ounce to black marketeers who retail it from $57 to $75 an ounce 
anywhere in the world. The Gold Trading Act of 1949, which sought 

— 136 — 

to restore a free market in gold, "was opposed "by our Government be- 
cause the United States is controlled by these international gold 
dealers and black marketeers. Some of the Hearings on this 1 Act are 
given below: 

Mr. Lawrence, banker from New York, said : 

"Arameo (Arabian- American Oil Company) made a deal with 
Ibn Sand agreeing to- give him, among other things, 80 million dol- 
lars in British gold sovereigns. The earth was sconred in order to 
find the eighty million dollars in British sovereigns. And yon may 
be surprised, gentlemen, just as much as I was, to know that these 
eighty million dollars in British gold sovereigns were finally found 
to be in the possession of a gentleman named Peron. A deal was 
made, and an additional twenty million dollars in British gold 
sovereigns was provided, which is being used today for purposes 
which I cannot exactly definej in Greece. "We, who are in possession 
of 75 percent of the world's: gold, are forced to go to South America 
and make a deal under the counter, paying fifty to sixty dollars an 
ounce, as compared to our own thirty-five dollars an ounce set by 
Mr. Roosevelt. Is it not strange' that we are forced in an important 
deal of this kind to go to Peron and obtain from him on terms we 
cannot exactly ascertain at the present time, an amount of gold suf- 
ficient to perform a' simple contract like this? The free gold market 
in this country from 1862-1879 or the free gold market prevailing 
in Great Britain from 1919-1925 did not create any currency chaos. 
During the war and postwar years the moneys of the world have been 
in the hands of men who believed in a managed currency. The orig- 
inator of this theory is Georg Friederieh Knapp.' This man, in the 
time of the Kaiser, believed that a state could give its currency any 
value that it chose. He outlined for the first time the complex struc- 
ture of exchange controls later adopted by Sehaeht in Nazi Germany. 
This same theory Avas given a slightly different angle and sold to 
the Anglo-Saxon world by Lord Keynes. A. managed currency in this 
country means that Congress must forfeit its constitutional power 
to regulate the value of inoney and delegate it to a non-elected and 
politically irresponsible bureaucracy. The men who make up our 
Federal Reserve Board and the International Monetary Fund are 
not men who have to face the approval or disapproval of an electorate. 
Largely as a result of English influence, this' country organized the 
Betton Woods institutions, the International Monetary Fund and the 
World Bank for Reconstruction and Development. Out of a total 
fund capital of eight billion dollars, this country contributed two 
billion seven hundred and fifty million in gold. 

CHAIRMAN: We have put up all the gold? 


At these same hearings, Mr. Searles, President of the Newmont 

— 137 — 

Mining Company, gave for the first time the story behind the 
dramatic airlift operation in Berlin. 

MR. SEARLES: "I have figured for the price of the airlift. It 
cost 350 million dollars. Now, if we had put 350 million dollars in gold 
behind the mark currency of Berlin, we would not have had to have 
that airlift. The cause of the airlift and the Russian blockade into 
Berlin was the dispute over the Berlin currency and the introduction 
of the Deutseh-mark. And the failure of the United Nations to end 
that blockade last autumn, if you remember, was due to the fact that 
the United Nations would not permit a sufficient length of time tv 
negotiate over the Berlin currency. I once wrote Sproul of the 
Federal Reserve Board and said if this government would permit the 
export of newly mined gold, it would swamp the black market in gold 
in a short time." 

The international gold merchants do not want a' free market 
in gold, and so the United States Government does not want a free 
market in gold. 

Seltzer said before the American Economic Association in 1946 

"Since 1929 our commercial banking system has been transformed 
from one in which bank deposits and bank earnings were based 
mainly on direct customer loans to one in which they earn money 
mainly from bank ownership of the public debt." The commercial 
banks' enormous income from the ownership of the public debt and 
subsequent lack of interest in loans has given rise to the small loan 
companies which charge exorbitant rates of interest, and to the auto 
loan and finance companies which charge extremely high rates. 

H. A. Dulan in the Southwestern Quarterly of June, 1943, says : 
"Prior to 1943, member banks of the Federal Reserve System 
relied on interest and discount on loans for the largest portion of 
their earnings. Since 1943, the interest and dividends on securities 
from the public debt have contributed the largest portion of earn- 

Besides important bankers, appointments to the Federal Re- 
serve Board lately have included big industrialists such as Ernest G-. 
Draper, President of the big California packers, Hill Brothers, and 
Dromedary Date Company, and Thomas B. McCabe, head of the! 
Toilet-Paper Trust, the Scott Paper Company. In March, 1951, 
McCabe resigned as Chairman of the Federal Reserve Board of 
Governors, and was replaced by "William McChesney Martin, former 
President of the Stock Exchange, and former President of the! Ex- 
port-Import Bank. Martin's father was a close associate of Paul 
Warburg in the American Acceptance Council, and worked with 
him to get American finance and industry to adopt the use of ac- 
ceptances, on which "Warburg held a virtual monopoly in this country. 

— 138 — 

The elder Martin was Governor of the Federal Reserve Bank of St. 

"Whatever its leadership, the Federal Reserve Board is com- 
mitted to tightening its financial supremacy over the United States. 
Bernard Baruch testified hefore Congress that : 

1 'We have not had a free or competitive economy since the First 
World War." 

Governor Marriner Eccles testified that we should not see our 
money market free from the money power's control in our lifetime. 

The latest statement was made hy Governor Mencius Szymczak 
of the Federal Reserve Board, who was appointed by BosS Kelly of 
Chicago to that office. Governor Szymczak stated in Time Magazine 
in September, 1950, that: 

"The more we can accomplish hy means of monetary, credit, 
and fiscal policies, the less need there will be for. the authoritarian 
harness of rationing and other direct controls." 

The most ominous pronouncement of the real rulers of the 
country, the trust owners who control finance and business, comes 
from Peter Drueker, a spokesman for them. Writing in the Satur- 
day Evening Post of October 28, 1944, on the occasion of the Bretton 
Woods agreements, Mr. Drueker wrote: 

"Should the world adopt a controlled economic system, leader- 
ship would logically fall to the Soviet Union. Russia would be the 
model for, such a dictatorship, for Russia' was the first country to 
develop the technique of international economic control- — -for trans- 
acting monopoly directed foreign trade and foreign exchange money. 
Her independence and military success had shown us naturally what 
could be done with such policies, which explains the acceptance of 
these policies by independent labor unions and political parties the 
world over. ' ' 

In the first place, Russia has no independence, as far as her 
citizens are concerned. In the second place, as a military success 
she collapsed when Hitler marched against Moscow, and was saved 
only by American production and shipment of lend-lease supplies 
given by our people. Nevertheless, our trust-owners whole-heartedly 
admire the way Stalin and the Politburo have subjected the Russian 
people to their dictatorship, and our own versions of Stalin and the 
Politburo are well on their way to doing .the same thing over here. 

This dictatorship cannot be exercised without the control of 
money and credit. If Congress actually had retained its sovereignty 
and refused to let Woodrow Wilson and Carter Glass hand over the 
sovereign right of coinage and the issue of our money to private 
bankers in 1913, the American people today would not stand on the 
brink of slavery. The Federal Reserve System has been the death of 
our Constitution. The Federal Reserve Board of Governors, chosen 

— 139 — 

by and working for the powerful international bankers, have inflict- 
ed catastrophe after eastastrophe npon our people. They have in- 
volved iis into two World Wars, they have planned and executed 
two of the worst economic depressions we have ever suffered. The 
American people have been kept in ignorance of the forces 1 working 
against them. The love of liberty, the innate self-reliance, and the 
uncompromising individualism of the native American must a'ssert 
itself against the control of the Federal Reserve Board if we are to 
renew the American Republic. 


Poor's Directory of Directors, Standard and Poor Publishing Corp. 

Volumes referred to from 1928 to 1951. 
Who's "Who In America, A. N. Marquis Co. Volumes referred to from 

1896 to 1951. 

The Federal Reserve System, by Paul Moritz Warburg, MacMillan, 

The Federal Reserve System, by H. Parker Willis, Ronald Co., 1923. 

A B C of the Federal Reserve System, by E. W. Kemmerer, Prince- 
ton University Press; 1919. 

Adventure In Constructive Finance, by Carter Glass, Doubleday, 

U. S. Federal Reserve Board Bulletins. Volumes referred to from 
.1914 to 1951. 

U S. Federal Reserve Board Annual Reports. Volumes referred to 

from 1914 to 1950. 
Banking. Reform in the United States, by Paul Moritz Warburg, j 

Academy of Political Science, Columbia University, July, I 


Senate Committee Hearings on Federal Reserve Act, 191,3. 
House Committee Hearings on Federal Reserve Act, 1913. 
House Committee Hearings on the Money Trust (Pujo Commmittee) 

House Investigation of Federal Reserve System, 1927-1928, 
Senate Investigation on Fitness of Eugene Meyer to be a Governor 

of the Federal Reserve Board, 1930. 
Senate Hearings on Office of Price Administration, 19411 
House Report on Nomination of Thomas D. Jones to be a Governor 

of the Federal Reserve Board, 1914. 
Senate Hearings on Office of Price Administration, 1944. 
Senate Hearings on Thomas B. MeCabe to be a Governor of the 

Federal Reserve System, 1948. 
House Committee Hearings on Extension of Public Debt, 1945. 
Who's Who In American Jewry, 1926-1939. 

— 140 — 


One of the most respected "Wall Street economists recently re- 
marked that "The cental bank, of course, was devised to get us off 
of the hook of the gold standard." The gold standard long ago was 
proved to he inadequate for modern commerce, since insufficient 
currency or credits could be issued on a strict adherence to ,the gold 
standard to finance the development of industrial civilization. The 
international elements who controlled the gold standard realized that 
unless they came up with a suitable alternative, they would have to 
abandon lie gold standard, and with it their enormous political and 
economic power. The central bank was that alternative. 

By the hocus-pocus of reserves, central banks were able to in- 
crease their issue of currency and credits by many times. "When 
securities were made the basis of monetary issue, enormous pyramid- 
ing of paper credits became possible, and speculators were able to 
erect fantastic financial houses of cards, which, of course, collapsed 
in due time, bringing the inevitable losses to investors. These abuses 
led directly to the deba'cle of 1929, with the active participation of 
the Federal Eeserve Board of Governors. The collapse of world 
economy which occurred then has remained largely unalleviated, ex- 
cept for stopgap financial measures. 

The future of long-term bond financing at this" writing is ex- 
tremely dubious. Since the central bankers have pyramided the sys- 
tem of national debts past the point where they can possibly be re- 
paid, they are assets only because of the yearly interest collected. The 
central bankers are desperately trying to maintain an economic status 
quo and continue to collect that interest. They are collecting fiye bil- 
lion dollars a year in interest' on the public debt of the United States 
Government, a sum larger than the entire postwar debt of the German 
nation. This interest of course is more important than the astronom- 
ical and uncollectible principal. This five billion dollars a year is the 
rent which the central bankers are charging the American people 
for the use of America's credit during the Second "World War. 

The central bankers have tried to protect their interests by in- 
ternationalizing their system of astronomical public debts, and by 
making the only financially sound nation, the United States, re- 
sponsible for bankrupt European states. This was done by setting up 
the International Monetary Fund at Bretton Woods in 1944. Henry 
Hazlitt wrote in Newsweek Magazine, Dec. 31, 1951, that "The chief 
remaining obstacle to a world restoration of freedom and sound money 
is the International Monetary Fund, an unnecessary institution set 
up, under the influence of the late Lord Keynes and Harry Dexter 
White, on a completely unsound basis." 

The architect of the International Fund was Harry Dexter 
White, son of Lithuanian Jewish immigrants and one of the three 

— 141 — 

most important Communist spies in America. With him at Bretton 
Woods were Frank Coe, Lauehlin Carrie, William L. TJllmann, and 
Nathan Silverma'ster. All of these men have been identified as Com- 
munist traitors. President Truman appointed White as director of 
the International Monetary Fund AFTER the FBI informed him 
of White's Communist background, Currie had been personal as- 
sistant to Franklin Boosevelt during the Second World War. Carrie, 
Hiss, White, and Coe enjoyed direct Presidential immunity from ex- 
posure of their Communist treason. 

Currie and White were monetary experts, bent on wrecking 
. the last free economy of the world, the American free enterprise 
economy. The reader may well wonder how international banking 
has been so closely tied up with Communism, which advertises itself 
as the enemy of bankers. Actually, Communism is the last rea'ction 
of an outmoded system of gold standard banking, financed and 
politically aided by those bankers, to the extent that when the German 
armies threatened this institution of Communism, the American 
nation was sent out to save Communism from extinction, by the great 
crusader, Franklin D. Roosevelt. 

The American people have assumed the burden of hundreds of 
billions of dollars of debt simply because we let a handful of enemy 
aliens take over our monetary system: The three most important 
architects of our present monetary system are almost completely un- 
known to the average American citizen, Who pays a heavy annual 
rate of taxation because of their machinations. 

They are Paul Warburg, the German J ew who wrote the Federal 
Reserve Act, Emmanuel Goldenweiser, the Russian Jew who super- 
vised the details of Federal Reserve Board operations through its 
first thiry years, and Harry Dexter White, son of Lithuanian Jews, 
Who set up the International Monetary Fund. Paul Warburg was one 
of the financiers of the Communist revolution in Russia, and Harry 
Dexter White was a key man in the Communist conspiracy here in 

According to the obituary of Dr. Goldenweiser in the New York 
Times, April 6, 1953, Elliott Thurston, Governor of the Federal Re- 
serve Board, said on Dr. Goldenweiser J s retirement in 1945 that "He 
undoubtedly has contributed more, over a longer period of time, to 
important policy-making in the Federal Government than any other 
civil servant." 

Yet what American citizen ever heard of Dr. Goldenweiser 1 Who 
had heard of Harry Dexter White, whose machinations cost us 
hundreds of millions of dollars in Germany after the Second World 
War when he turned over the TJ. S. Treasury plates for printing 
occupation marks to his Communist' accomplices? American citizens, 
must reclaim their power of monetary issue from these enemy aliens 
or endure the collapse of our economy and our Western civilization. 

— 142 — 

Some brief notes on principal figures in this book are appended : 
PAUL "WARBURG : Died 1932. His son, James Panl "Warburg, 
whose books are replete with Communist propaganda, was a member 
of Franklin D. Roosevelt's Brain Trust, propaganda chief of Eisen- 
hower's headquarters in London during the Second World War, 
mastermind of the Eisenhower Presidential campaign, and chief 
backer of the United World Federalists, world government movement. 

HENRY MORGENTHAU JR: Morgenthau's personal assistant 
in the U. S. Treasury, Harry Dexter White, was exposed as a prin- 
cipal Communist agent. Morgenthau is now prominent in Zionist 

HERBERT LEHMAN: Now a U. S. Senator, Lehman spent 
hundreds of millions of dollars of American money in Central Europe 
during the Second "World War, as head of United Nations Relief and 
Rehabilitation Agency. This money was spent to ensure that "reac- 
tionary" governments would not! come back into power, and that post- 
war Central Europe would be under the control of "Liberal, demo- 
cratic" elements, the Communist Party. Lehman's personal assistant, 
Laurence Duggan, with a long record of fellow-traveling activity, 
died suddenly the day before he was due to be interrogated by the 
House Un-American Activities Committee. His intimate friend, 
Sumner "Welles, as well as other government leaders, denied 
that Duggan had killed himself. 

Current Biography notes that Herbert Lehman was elected 
Governor of New York with the active support of the Communist 
Party. The chief corporate representative of his family banking house, 
Lehman Brothers, is General Lucius Clay. One of Eisenhower's clos- 
est advisors, Clay was identified in the New York Post, April 19, 
1953, as the man who selected George Humphrey as Eisenhower's 
Secretary of the Treasury. 

Loeb Co. former private secretary of Herbert Hoover, com- 
missioned as Rear Admiral in World War II, appointed member of 
first U. S. Atomic Energy Commission by President Truman, ap- 
pointed personal advisor on atomic energy to President Eisenhower, 
showing that Kuhn, Loeb Co. is always above partisan politics. 
Statement Of Congressman Wright Patman, Of The House Banking 
And Currency Committee 

April 14, 1952, the Board of Governors addressed a letter to me, 
as chairman of the Subcommittee on General Credit Control and Debt 
Management of the Joint Committee on the Economic Report, in reply 
to my letter requesting information, in which the Chairman of the 
Board stated that he was enclosing a memorandum prepared by the 
counsel of the Federal Reserve Board concerning the legal status of 
the Board and the Federal Reserve banks. Of course, this opinoiu 
was also the opinion of the Board of Governors. 

— 14-3 — 

Excerpts from the statement axe as follows: 

The Board of Governors was created by Congress and is a part 
of the Government of the United States. Its members are appointed 
by the President, with the advice and eonsent of the Senate, and it 
has been held by the Attorney General to be a Government establish- 
ment ^ (30 Op. Atty. Gen., 308 (1914). 

"The 12 Federal Reserve banks are corporations set up by 
Federal law to operate for public purposes under Government super- 

"The Federal Reserve banks derive their existence and powers 
from statutes passed by Congress, and in this practical sense may 
be looked upon as agencies of Congress. 

"In view of the public nature of their functions, the courts have 
held the Federal Reserve banks to be a'gencies or instrumentalities of 
the Federal. Government. 

"There is no free market that can cope with a national debt of 
$272 billion, with $85 biEion of it to be refunded within 1 year.. Free 
market means private manipulation of credit. The Federal Reserve 
Board, to my mind, is guilty of the grossest kind of misconduct in 
failing to support the Government of the United States at a time 
of its greatest economic peril in Government securities. As an instru- 
ment of the Government, it is itself failing and refusing during a 
time of need to come to the aid and rescue of the Government and the 

The Real Power Behind The Throne 

"The Open Market Committee of the Federal Reserve System is com- 
posed of the 7 members of the Board of Governors .and 5 members who are 
presidents of Federal Reserve banks and who were selected by private com- 
mercial banking interests. The Open Market Committee has the power to 
obtain, and does obtain, the printed money of the United States— Federal 
Reserve notes — from the Bureau of Engraving and Printing, and exchanges 
these printed notes, which of course are not interest bearing, for United 
States Government obligations that are interest bearing. After making the 
exchange, the interest bearing obligations are retained by the 12 Federal 
Reserve banks and the interest collected annually on these Government 
obligations goes into the funds of the 12 Federal Reserve banks. These 
funds are expended by the system without an adequate accounting to Con- 
gress. In fact there has never been an independent audit of either the 
12 banks or the Federal Reserve Board that has been filed with the Con- 
gress where a Member would have an opportunity to inspect it. The General 
Accounting Office does not have jurisdiction over the Federal Reserve. For 
40 years the system, while freely using money of the Government, has not 
made a proper accounting. 

"The Open Market Committee operation is the most important function 
of the entire Federal Reserve System. It provides either hard money or easy 
money. It makes conditions good or bad. It determines whether or not we 
will have a depression in this country or whether or not our country will 
remain prosperous." 

— 144 — 

Eustace Clarence Mullins, Jr. 


Our task is to regain 
individual sovereignty!